Trend of assessment cases and amount
The following table shows the latest 20 years TP assessment cases and assessment amounts in Japan by 5 years.
(Unit: 100 million JPY)
| 2004-2008 | 2009-2013 | 2014-2018 | 2019-2023 | |
| Assessment cases (A) | 546 | 820 | 1,062 | 774 |
| Assessment amount (B) | 8,021 | 3,733 | 1,742 | 2,273 |
| Amount per case (B/A) | 14.69 | 4.55 | 1.64 | 2.94 |
(Source: National Tax Agency website)
It is obvious that the Assessment amount per case fell down from 1,469 million JPY of 2004-2008 period to 294 million JPY of 2019-2023 period.
The large-scale taxation cases in large multinational corporations went around in 2000’s and those taxpayers strengthened their TP management function including utilization of APA program, which decreased quite a few large cases.
In addition, the number of assessments has been on the rise from 2004-2008 period to 2014-2018 period. The 2019-2023 period includes the impact of Covid-19 period when the number of tax audits got much lesser due to the state of emergency etc., however, regardless of the Covid-19 impact, the cases are much more than those of 2004 to 2008 period.
This increase is attributed to the fact that, in the past, transfer pricing investigations were primarily conducted by the regional tax bureau, which mainly oversees large corporations, but now local tax offices that oversee small and medium-sized enterprises have also begun to conduct transfer pricing taxation as part of general investigations, focusing on simpler cases.
Situation of TP audits in Japan
Currently, in many cases TP audits are integrated into general tax audits by assigning senior examiner (international taxation), which makes the duration of the TP analysis much shorter (basically one to three months to complete). To conclude a tax audit in a short period, tax auditors conduct a preliminary analysis to identify potential TP issues. Therefore, the taxpayer also needs to prepare for the tax audit by preparing TP documentation or at least some quantitative analysis to support the actual result before the tax audit announcement.
What does the trend mean to the taxpayer?
Generally speaking, companies going into Japanese market would start with a small scale and in the past would have not been focused so much by the local tax offices. However, now that the local tax offices perform TP audit within the general tax audit with support of senior examiner (international taxation), relatively small sized companies (many of them may have service transactions with its related party) also need to pay attention to Transfer Pricing. The starting point is to review the pricing policy and if necessary start talking about it with your related parties.
