Transfer Pricing
Country Summary

This document outlines Japan’s approach to transfer pricing regulations, emphasizing alignment with the OECD Guidelines. It references key aspects of Japanese transfer pricing laws, including the definition of related parties, nature of transfer pricing documentation, and advanced pricing agreements (APAs). The document provides insights into the audit practices, highlighting circumstances that may trigger scrutiny by the National Tax Agency. It also discusses the choice of transfer pricing methods and the economic analysis through benchmark studies. Japan emphasizes local comparables and the importance of financial statements in disclosure. The document concludes with details on penalties, record-keeping, and compliance.


Japan’s Transfer Pricing Regulations and OECD Guidelines

Japan adheres to the OECD Guidelines in its transfer pricing documentation requirements. The key elements of Japanese transfer pricing regulations, as outlined in various legislative documents, are discussed. The document highlights the definition of related parties and the nature of transfer pricing documentation, which has been criticized in the past but remains mostly consistent with OECD Guidelines.

Advance Pricing Agreements and Audit Practices

Japan offers both unilateral and bilateral advance pricing agreements, with a preference for the latter. Audit practices target industries based on factors like profitability, transactions with tax havens, and profit margins. The document provides insights into profit margin-based examinations and the importance of referring to OECD Guidelines during examinations or APA processes.

Transfer Pricing Documentation Requirements

Japan’s examination process relies on obtaining information from various documents, including those detailing capital relationships, foreign-related transactions, and documents used for calculating arm’s length prices. Multinational enterprises are required to prepare a Master File, Local File, and Country-by-Country Report. The document stresses the importance of a benchmark study to identify arm’s length prices, and it highlights Japan’s preference for local comparables over foreign ones.

Penalties and Compliance

The document outlines the penalties and interests that apply in cases of tax adjustments. For non-compliance with the Master File and Country-by-Country report submission, there’s a fine of up to 300,000 yen. Failure to present a Local File by a specified date can result in tax imposed by estimation. Japan places great importance on compliance and documentation in the realm of transfer pricing.

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