| Legislation |
| Does Japanese TP legislation refer to OECD guidelines? | Yes. Japanese legislation is in compliance with OECD guidelines, including Transfer pricing methods, comparability analysis, treatment of intangibles and intra-group services, financial services and Transfer pricing documentations etc. |
| What are the laws relating TP? | Followings are the laws related to TP. Article 66-4 and 67-18 of Act on Special Measures concerning Taxation (“ASMT”)Article 39-12 of Order for Enforcement of the ASMTArticle 22-10 and 22-19-4 of Ordinance for Enforcement of ASMT In addition, there are related directives including case studies for interpretation of the laws and guidance from National Tax Agency. |
| Does Japanese TP legislation have definition of “Related party”? | Yes, it has both formal control criteria (50% or more) and substantive control criteria. |
| Does Japanese TP legislation align with AOA? | Yes, Japanese TP legislation follows the Authorised OECD Approaches for the attribution of profits to PEs (AOA). |
| Documentation |
| Does Japanese TP legislation require the taxpayer to prepare TP documentation? | Yes, the following documents are required unless exempted. Master file To be submitted to the competent District Director within one year of the day following the one when the Ultimate Parent Entity’s fiscal year ends Local file To be prepared by final return filing due to date, and to be submitted upon request during tax examination Country-by-country report (CbCR) To be submitted to the competent District Director within one year of the day following the one when the Ultimate Parent Entity’s fiscal year ends. |
| Who are exempted from Master file and CbCR submission? | MNE Groups with total consolidated revenue for the Ultimate Parent Entity’s preceding fiscal year of less than 100 billion yen |
| Who are exempted from Local file preparation? | Corporations which satisfy both of the followings for each of the foreign subsidiary. (1) the amount of transactions (total of receipts and payments) with the foreign related party during the previous business year (*) was less than 5 billion yen, and (2) the amount of transactions of intangibles (total of receipts and payments) with the foreign-related party during the previous business year (*) was less than 300 million yen (*) The current business year if there was not the previous one |
| Is the taxpayer exempted from any TP analysis if it is exempted from Local file preparation? | No. Even for the transactions exempted from contemporaneous documentation, if the tax auditor requests to submit during tax examination, the taxpayer still needs to submit the documentation equivalent to Local file. |
| Then, what makes different between non-exempted and exempted? | The main difference is the deadline of the submission during the tax examination. (Contemporary documentation case=non-exempted) The deadline is the appointed day within 45 days upon request (Exempted case) The deadline is the appointed day within 60 days upon request |
| Does Japanese tax authorities use secret comparables for transfer pricing assessment? | Yes, if the Local File or the document equivalent to Local File is not presented or submitted by a certain appointed date, the tax authorities can inspect persons engaged in similar businesses by asking questions. Information obtained through such inspections may be used to determine the arm’s length price. |
| Administration |
| Is a taxpayer required to prepare a Local file in Japanese? | A taxpayer can prepare a Local file with a language other than Japanese, however, the tax auditor can request the taxpayer to translate the language into Japanese. |
| How is the situation of TP audit 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. |
| How many TP assessments conducted in Japan? | The latest 5 years data is as follows (as of Jan 2025). (Unit: 100 million JPY) (Source: National Tax Agency website) |
| What should a taxpayer do as the initial actions when tax audit announcement? | In the tax audit, there should be a list of information and data requested at the first meeting with tax examiners. It is inevitable to check if there are any items related to Transfer pricing matters. Further, it is also recommended to ask your tax advisor to search the tax examiners’ career background to check if whether the examiners have international tax experiences. If they have, it is important to initiate preparation for TP queries. |
| Does Japan have APA program? | Yes. Japan is one of the most experienced countries in terms of Advance Pricing Arrangement (APA). As for Bilateral or multilateral APAs which require mutual agreement procedure with other countries, the National Tax Agency handles the case with support of the regional tax bureau. As for Unilateral APAs which only involves Japanese tax authority, the regional tax bureau in charge of the taxpayer handles the case. |
