- The tax authority in Japan is the National Tax Agency (NTA).
- Japan is an OECD member, and Japan’s transfer pricing regulations are generally consistent with the OECD’s guidelines.
- Japan has adopted BEPS CBCR requirements and the master file. Japan has a threshold for CBC and master file reporting for companies with consolidated revenues of JPY 100 billion or more (app USD 680 million).
- The Japanese local file has a threshold for transactions with affiliates of JPN 5 billion (USD 34 million) or intangibles of JPN 300 million (USD 2 million).
- Schedule 17-4, the “Detailed Statement Regarding Foreign Affiliated Companies,” must be attached to the annual tax return when the taxpayer has transactions with foreign related parties.
- It is common for transfer pricing audits to examine the methodologies used, and there is a medium to high possibility for adjustments.
- Branches in Japan are considered permanent establishments and subject to being taxed like a corporation. These entities must follow the same transfer pricing requirements.
- The master file is due one year and a day following the FY year-end of the ultimate parent company. The local file for transactions requiring contemporaneous documentation is due a maximum of 45 days from examiner’s request. For domestic transfer pricing transactions, it’s 60 days from the examiner’s request.
- The corporate return and Schedule 17-4 are due March 31.
- Japan has its own format for the local file, which differs from the OECD format. Japan requires segmented profit and loss information for the tested party and the counterparty to the transaction.
- There are no safe harbor provisions for transfer pricing.
- Japan is a signatory to the Multilateral Competent Authority Agreement.
- The master file can be submitted in English or Japanese; the local file must be in Japanese.
- Local benchmarks are required, unless the tested party is outside Japan.
- There is a preference for the weighted average using the interquartile range.
- In the past, Japan preferred the CUP, resale price, and cost-plus methods to the profit-split and TNMM, which were only welcome if the others could be discounted. Since 2011, Japan has been in favor of the most appropriate method.
- Risk of transfer pricing audits is high.
