Overview
In June 2025, the National Tax Agency (NTA) published “The Simplified and Streamlined Approach for the Application of Transfer Pricing (FAQ)“. Although Japan will not implement the simplified and streamlined approach (“Amount B” of OECD’s BEPS2.0 Pillar One) for the time being, this document summarizes Japan’s tax treatment of the approach. This is because of the possibility that the simplified and streamlined approach will be implemented in the counterparty jurisdictions where the overseas related parties (e.g., subsidiaries) of Japanese corporations are located.
What are included in the FAQ？
This FAQ consists of five questions and answers.
- Question 1: What is the overview of the simplified and streamlined approach?
- Question 2: If our overseas related party (e.g., subsidiary) calculates an arm’s length price using the simplified and streamlined approach in its country or region of residence, can we also use the simplified and streamlined approach to calculate the arm’s length price in Japan for that transaction?
- Question 3: Is it possible to file for an Advance Pricing Arrangement (APA) that treats the result of the simplified and streamlined approach as the arm’s length price for a controlled transaction with our overseas related party (e.g., subsidiary) located in a country or region that has implemented the approach?
- Question 4: If double taxation arises because our overseas related party’s (e.g., subsidiary’s) country or region of residence imposes a tax assessment based on the simplified and streamlined approach, is it possible to file for a Mutual Agreement Procedure (MAP)?
- Question 5: Is transfer pricing documentation prepared using the simplified and streamlined approach in the country or region where our overseas related party (e.g., subsidiary) is located recognized as valid transfer pricing documentation for calculating the arm’s length price in Japan?
What are the contents of each FAQ?
Question 1: What is the overview of the simplified and streamlined approach?
Answer: Within the OECD/G20 Inclusive Framework on BEPS, discussions are being held regarding the tax challenges arising from the digitalization and globalization of the economy. The simplified and streamlined approach is one of the solutions, aiming to simplify and streamline the application of the arm’s length principle for certain controlled transactions of distributors engaged in baseline marketing and distribution activities that meet specific criteria. Specifically, it identifies in-scope transactions from a company’s controlled transactions using quantitative criteria and calculates the arm’s length price using a pre-determined pricing matrix.
Under the report on Amount B, jurisdictions that choose to apply the simplified and streamlined approach can do so for in-scope transactions for fiscal years commencing on or after 1 January 2025.
Please note that Japan will not implement the simplified and streamlined approach for the time being.
Question 2: If our overseas related party (e.g., subsidiary) calculates an arm’s length price using the simplified and streamlined approach in its country or region of residence, can we also use the simplified and streamlined approach to calculate the arm’s length price in Japan for that transaction?
Answer: Since Japan does not implement the simplified and streamlined approach, you must calculate the arm’s length price using the traditional methods for calculating the arm’s length price, regardless of whether your overseas related party applies the simplified and streamlined approach in its country or region of residence.
This is not affected by whether or not the country or region of the overseas related party is a “covered jurisdiction”.
Question 3: Is it possible to file for an Advance Pricing Arrangement (APA) that treats the result of the simplified and streamlined approach as the arm’s length price for a controlled transaction with our overseas related party (e.g., subsidiary) located in a country or region that has implemented the approach?
Answer: Since Japan does not implement the simplified and streamlined approach, it is necessary to file for an APA using the traditional methods for calculating the arm’s length price.
This is not affected by whether or not the country or region of the overseas related party is a “covered jurisdiction”.
Question 4: If double taxation arises because our overseas related party’s (e.g., subsidiary’s) country or region of residence imposes a tax assessment based on the simplified and streamlined approach, is it possible to file for a Mutual Agreement Procedure (MAP)?
Answer: If double taxation arises because the country or region where your overseas related party resides imposes a tax assessment based on the simplified and streamlined approach, you can file for a MAP under the applicable tax treaty, provided one exists between that jurisdiction and Japan.
Even if a state of double taxation arises because you and your overseas related party filed in your respective countries or regions based on different approaches resulting in different arm’s length prices, you can still file for a MAP if a tax treaty exists between the two jurisdictions.
The MAP between the competent authorities will be conducted based on the traditional methods for calculating the arm’s length price, not the simplified and streamlined approach. This applies even if the country or region where the overseas related party is located is a “covered jurisdiction”.
Note that the report on Amount B states that where the simplified and streamlined approach is applied by an overseas related party, and that jurisdiction is a “covered jurisdiction” with a tax treaty in effect, the jurisdiction of the counterparty entity will, subject to its domestic laws and administrative practices, respect the outcome of the simplified and streamlined approach applied by the covered jurisdiction. In a MAP, Japan will also respond in a manner consistent with this, within the scope of its domestic laws and administrative practices.
Question 5: Is transfer pricing documentation prepared using the simplified and streamlined approach in the country or region where our overseas related party (e.g., subsidiary) is located recognized as valid transfer pricing documentation for calculating the arm’s length price in Japan?
Answer: Since Japan does not implement the simplified and streamlined approach, transfer pricing documentation prepared in the overseas related party’s jurisdiction using this approach cannot be said to conform to the documentation reporting format required under Japan’s transfer pricing rules. Therefore, under Japan’s transfer pricing documentation requirements, you are required to prepare, maintain, and (upon request from the authorities) submit transfer pricing documentation that calculates the arm’s length price using the traditional methods.
However, if such documentation prepared in the other jurisdiction using the simplified and streamlined approach also includes an analysis and calculation of the arm’s length price using traditional methods, and if that result is consistent with the outcome of the simplified and streamlined approach, the documentation could be considered to conform to the documentation reporting format required under Japan’s transfer pricing rules.
The above treatment is not affected by whether or not the country or region of the overseas related party is a “covered jurisdiction”.
Key Takeaway
The key takeaways are as follows.
First, since Japan will not adopt the simplified and streamlined approach (Amount B) for the time being, transfer pricing compliance in Japan must continue to be handled in accordance with the traditional methods for calculating the arm’s length price.
As stated in Q4, during a Mutual Agreement Procedure (MAP), if the counterparty jurisdiction has adopted Amount B, Japan is to give a certain level of consideration as described in the OECD report. On the other hand, as stated in Q5, documentation based solely on Amount B is not permissible under Japan’s domestic transfer pricing documentation rules; at a minimum, the documentation must also include the results of an analysis using traditional arm’s length calculation methods.
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