|Reassessment of Transfer Pricing of Transactions Between Honda and Honda's Motorcycle Operation in Brazil|
|Tokyo, June 29, 2004 - Honda Motor Co., Ltd. announced today that it has received notification from the Tokyo Regional Taxation Bureau, of a reassessment of the profits Honda earned from its transactions with Moto Honda da Amazonia, Ltda., its local subsidiary in Brazil, for the 6-year period of 1997-2002. The Taxation Bureau claims that distribution of the profits between Honda Motor Co., Ltd. and Moto Honda da Amazonia, Ltda. was too low on the Japan side. Income was reassessed at an additional 25.4 billion yen resulting in Honda incurring an additional tax of approximately 13.0 billion yen. Honda has voiced its objection to this reassessment and from the standpoint of preventing double taxation, plans to file a formal request for bilateral consultations between the two countries based on the Tax Convention.
Honda established Moto Honda da Amazonia, Ltda. in 1975. Local production began in 1976. Situated in Manaus, Amazonas, a designated industrial development region, Moto Honda da Amazonia, Ltda. has increased its local content ratio to approximately 90%, in line with the Brazilian government’s strategy of having main production processes take place locally. Improvements in quality and productivity have led to the realization of substantial cost reductions. Further, in the area of sales, Brazil’s unique installment sales system has been utilized and expanded into the largest scale operation of its kind in the nation resulting in the establishment of a strong sales network. Through such local efforts to expand its business, Moto Honda da Amazonia has been able to weather major fluctuations in the economy, proactively reinvest profits locally and rapidly increase sales by over 10-fold in a period of 10 years.
In the fiscal year which ended December 31, 2003, Moto Honda da Amazonia, Ltda. produced approximately 820,000 units and achieved domestic sales of roughly 730,000 units. Approximately 90,000 units were exported to 68 countries in North America, Europe and Oceania as well as Central and South America. Exports of finished motorcycles from Honda Motor Co., Ltd. to Brazil totaled roughly 300 units during the same period.
In their business activities, Moto Honda da Amazonia, Ltda. and Honda Motor Co., Ltd. have determined the business terms relating to the transactions between them based upon applicable laws and regulations in Brazil and have paid appropriate taxes in Japan and Brazil on profits earned from these business activities in accordance with the tax laws of both countries.
Over a period of many years, Honda has made dedicated efforts to grow its local operation in Brazil and the Taxation Bureau’s allegation that the bulk of profits earned there must be allocated to Japan is totally unacceptable. Honda is confident that its assertion will be fully respected during the course of relevant proceedings and that this case will be resolved in a manner acceptable to Honda.