How Japan’s new documentation requirements work
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How Japan’s new documentation requirements work

BEPS has well and truly reached Japan’s shores. Timothy O’Brien, Takuma McNie and Luke Tanner of Deloitte Tohmatsu Tax look at the ins and outs of the new documentation requirements.

Japan's implementation of new transfer pricing documentation rules (including country-by-country reporting, master file and local file) applies for fiscal years beginning on or after April 1 2016 (for country-by-country reports and master files) and fiscal years beginning on or after April 1, 2017 (for local files). In addition, a Notification for Ultimate Parent Entity must be submitted to the Japanese authorities for fiscal years beginning on or after April 1 2016.

  • Notification for Ultimate Parent Entity: The notification is the first document required to be filed under the new system, and must be submitted by the last day of the ultimate parent's fiscal year. This deadline is earlier than those for the country-by-country report and the master file. Entities with a March year end will need to submit the document by March 31 2017 (via the "e-Tax" system). All Japanese companies (or foreign companies with a permanent establishment in Japan) that are constituent entities of a multinational enterprise are required to submit the notification. However, there is an exemption for groups with more than one Japanese company (or foreign companies with PEs in Japan). In these cases, one company can submit the notification, along with the details of all other companies.

The notification contains basic information including: the name of the ultimate or surrogate parent entity; the location of its head or principal office; its corporate number; and the name of its representative.

Japanese language instructions on how to submit the notification in the "e-tax" system were published on Japan's National Tax Agency (NTA) website in late January 2017.

  • Country-by-country reporting: Japanese companies that are the ultimate parents of multinational groups and meet the filing threshold of group revenue of ¥100 billion ($885 million) in the previous year must file a country-by-country report. The report must be filed electronically within one year after the end of the group's fiscal year. In certain cases, a Japanese subsidiary of a multinational group or a Japanese permanent establishment of a non-Japanese group company in which the ultimate parent is not a Japanese company is required to file the country-by-country report if the report has not been received from the applicable government.

  • Master file: Japanese companies or permanent establishments that are members of a multinational group that meets the filing threshold of group revenue of ¥100 billion in the previous year must file a master file. The master file must be filed electronically with the Japanese tax authorities and is due within one year after the year end of the ultimate parent company.

  • Local file: Existing Japanese legislation which set out requirements to demonstrate related party transactions' compliance with the arm's-length standard was revised to make it more consistent with Action 13 (however, some differences remain). Based on the revised Japanese legislation, the local file should be prepared by the time the entity's income tax return is filed (subject to certain thresholds). In practice, the local file must be readily available to the tax authorities if requested (e.g. under audit) and while there are threshold requirements for contemporaneous documentation, all companies with foreign related party transactions should be prepared to submit documents consistent with the local file rules at the time of audit. Failure to provide the local file to the tax authorities when requested may lead the authorities to apply presumptive taxation (which could include audits of third parties whose business operations are deemed to be comparable to that of the taxpayer). The period in which the requested files must be submitted is determined by the auditor but cannot exceed 45 days or 60 days, depending on transaction size thresholds and the nature of the questions (e.g., primary documentation or additional supporting information).

As Japanese companies move into the period covered by the new rules (e.g. for March year end companies, country-by-country reports, master file and the notification for ultimate parent entity are required for the year ended March 31 2017) , the NTA has issued guidance and clarification of the new rules. Included in this guidance is: (i) the Outline of the Revision of the Transfer Pricing Documentation, which was issued in Japanese and English; (ii) the Documents Recognised as Necessary for Calculating Arm's-Length Prices which was issued only in Japanese; (iii) Transfer Pricing Documentation FAQ which was issued only in Japanese.

Outline of the revision of the transfer pricing documentation

The official outline is in the Japanese language, however the Japanese authorities also released an unofficial English translation as a reference. The outline explains at a high level the different documents which need to be prepared or submitted under the new rules including: content of each document, under what circumstances preparation or submission is required, formats, timing and deadlines, exceptions, language and penalty information. The outline also provides several examples showing the circumstances under which the various documents are required, and displays the additional requirements under the new local file rules, in comparison to the existing documentation rules.

Documents recognised as necessary for calculating arm's-length prices

The NTA released an additional paper containing a collection of illustrative examples of the kind of documents that the tax authorities consider relevant when preparing local files. The document reproduces each of the requirements of the revised Japanese law, and explains each requirement, and provides examples of information and documents that, from the tax authorities' view, could satisfy each requirement.

This local file guidance is useful for taxpayers as it clarifies the tax authorities' view of some of the more vaguely worded items of the Japanese law, as well as providing an understanding of what the Japanese authorities may expect from taxpayers' local file documentation. Based on the local file guidance, it appears the Japanese authorities expect taxpayers to prepare and maintain highly detailed information. It is worth noting that the guidance represents the tax authorities' interpretation of the Japanese law, and a taxpayer may take a different view of what satisfies each item. Whether or not it is necessary to closely follow the guidance in preparing an adequate local file, it can be expected that the tax authorities may request information consistent with the items covered by this guidance during an audit.

Transfer pricing documentation FAQ

In late 2016, a Transfer Pricing Documentation FAQ was also issued by the NTA in Japanese. The FAQ provides the NTA's responses to an extensive list of questions the authorities commonly receive or have identified as items that need additional clarification (97 questions and answers spanning 36 pages in Japanese language). The FAQ covers general questions (e.g. outline of the rules, reasons for revision, taxpayers subject to filing requirements) as well as specific questions and answers on each of the filing requirements under the new documentation rules listed above (i.e. notification for ultimate parent entity, country-by-country report, master file and local file). Although no English language translation has been made available by the authorities, the FAQ is nevertheless a useful resource for both Japanese and foreign multinationals that are subject to the new documentation rules.



Timothy O'Brien

Deloitte Tohmatsu Tax Co.

Tokyo, Japan

Tel: +81 (3) 6213 3923

Timothy O'Brien is partner in Deloitte Tohmatsu Tax Co.'s Tokyo-based Transfer Pricing Consulting Services team.

Timothy has more than 20 years' experience in transfer pricing matters and has worked in Deloitte's Tokyo office since August 2000. He supports Japan-inbound companies with their cross border tax and transfer pricing issues and also assists Japan-based multinationals with global planning. He has a long history developing and negotiating pricing methodologies for Advance Pricing Agreements (APAs) and for settling audit cases with the local and Regional Taxation Bureaus. His recently concluded Japanese bi-lateral APAs have involved the USA, Singapore and Switzerland.

Timothy serves a number of foreign-based multinational companies, primarily in the technology, media, & telecommunications (TMT) and life-sciences industries. Specific experience includes assisting a foreign based multinational integrate full-function Japanese operations into a Singapore supply hub structure and assisting a company move certain IP offshore in conjunction with implementation of a cost sharing arrangement (CSA).



Takuma McNie

Deloitte Tohmatsu Tax Co.

Tokyo, Japan

Tel: +81 (80) 3346 6467

Takuma focuses on foreign multinationals with Japanese operations primarily in the life science and high technology industries. In this capacity Takuma has assisted clients in both planning and controversy. Successful planning projects include multilateral cost-sharing arrangements, sales of local intangibles and post-transaction structuring. Controversy projects include both audit defense (in Japan, US and Canada) and advance pricing arrangements (involving Japan, US, Singapore, and Canada).

Takuma has also led the preparation of technology-enabled global OECD Action 13-compliant transfer pricing documentation and developed and implemented centralised global transfer pricing policies for multinational headquarters. Furthermore, Takuma has also provided guidance on debt capacity and pricing in this role.

Takuma is a Chartered Accountant (Canada).



Luke Tanner

Deloitte Tohmatsu Tax Co.

Tokyo, Japan

Tel: +81 (80) 4183 7349

Luke is a transfer pricing manager with Deloitte Japan. Luke has over 10 years' tax experience, five in an international tax role and five in transfer pricing.

In his role as an international tax manager, Luke was based in Australia and assisted Australian and foreign multinationals with inbound and outbound investments, including cross-border M&A transactions.

As a transfer pricing manager, Luke focuses on the financial services and life sciences industries. Luke assists clients in both planning and controversy, including advance pricing arrangements involving Japan, the US and the UK.

Luke holds a master of laws from the University of Melbourne and is qualified as a lawyer (Supreme Court of Victoria).

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