Japan Transfer Pricing Policy

Japan has signed Double Taxation Agreements (DTA) with over 80 countries.

To claim the benefits of the tax treaty between countries with Japan, you need to submit Application Form for Income Tax Convention (Form 1) with relevant attachments to the tax authorities in Japan before the date of payment. Otherwise, if you fail to submit the forms in time, you can still claim the benefits of the tax treaty by submitting the Application Form for Refund of the Overpaid Withholding Tax (Form 11).

Japan Tax Treaties with China <click me
Japan Tax Treaties with Taiwan <click me
Other countries on your request

Email: tyo4ww@evershinecpa.com
Contact: Andrea Kyu, speak both Japanese and Mandarin
Onarimon Yusen Building 7F, Nishi-Shinbashi 3-23-5,Minato-ku, Tokyo 105-0003, Japan

TP-Q-10

Why kinds of scenarios will be adopted TP policy? What is the relevance between DTA and TP policy?

TP-A-10

When the Japan Tax entity would like to pay out whatever business profits, Royalty, Technical Services fees, Interests, trading amount etc., it will adopt DTA tax rate. Its judge criteria, please see the Japan Treaty Page.

But if want to verify the above-mentioned amount if reasonable, will adopt Japan TP Policy.

TP-Q-20:   

在日本甚麼情況下, WFOE 外商投資企業不需要同時處理TP 申報和文件申報?

What are the scenarios in Japan, that a Wholly Foreign-Owned Entity (WFOE) is exempted from compliance of Transfer Pricing (TP) declaration and TP documentation?

TP-A-20:

You have been exempted from TP declaration and TP documentation if Foreign-related transactions < 5 billion yen (<300 million yen for intangibles transactions).

TP-Q-30:   

在日本甚麼情況下, WFOE 外商投資企業需要向該國的稅務局發送TP 申報? 甚麼是申報單名稱?

What are the scenarios in Japan, that a Wholly Foreign-Owned Entity (WFOE) is required to submit a TP declaration to the country’s tax bureau? What is the name of the TP declaration form?

TP-A-30:

Consolidated Group Revenue of PUE’s preceding fiscal year >=100 billion yen. Notification for Ultimate Parent Entity.

TP-Q-40:   

在日本甚麼情況下, WFOE 外商投資企業需要向該國稅務局發送TP 申請和文件? 甚麼 declaration 表單名和文檔名?

What are the scenarios in Japan, that a Wholly Foreign-Owned Entity (WFOE) is required to submit a TP declaration and TP documentation to the country’s tax bureau? What is the name of the TP declaration form and TP documentation form?

TP-A-40:

Consolidated Group Revenue of UPE’s preceding fiscal year >=100 billion yen. Notification for Ultimate Parent Entity.

Foreign-related transactions >= 5 billion yen (>= 300 billion yen for intangibles transactions) – TP documentation form (Local file)

Consolidated Group Revenue of UPE’s preceding fiscal year >= 100 billion yen – TP documentation form (Master file, CbC Report).

Japan TRANSFER PRICING for professionals

Overview

The calculation method of the price between independent companies in Japan aligns with the OECD Transfer Pricing Guidelines.

These guidelines provide solutions and aim to minimize disputes between tax authorities or between tax authorities and multinational corporations.

In Japan, transfer pricing rules applies to international transactions engaged with a foreign juridical person with which has an affiliated relationship.

Japan’s legislation applies only to foreign-affiliated transactions because the Japanese authorities do not believe that there is a threat of lost tax revenues in domestic transactions due to any shifted income is ultimately taxed in Japan.

Affiliated relationship

1. Having 50% or more common ownership (directly or indirectly) or
2. A special relationship exists when
   1. 50% or more of the officers of the company are or were employees or officers of the other company.
   2. The representative director of the company is or was an employee or officer of the other company.
   3. A considerable proportion of a company’s operating transactions are with the second company.
   4. A considerable proportion of a company’s outstanding operating loans have been borrowed from or guaranteed by the second company.

Types of transactions covered

*Sale or purchase of inventory or other property.

*Rents from tangible assets.

*Royalties for the use of and sale or purchase of intangible assets.

*Provision of services.

*Interest on loans or advances.

*Fees for intercompany services.

Transfer Pricing method

*The Comparable Uncontrolled Price (CUP) method.

*The Resale Price Method.

*The Cost-Plus method.

*Other methods

*Profit Split method

**Comparable profit split method

**Contribution profit split method

**Residual profit split method

**Transactional net margin method (TNMM)

Documentation

All Japanese corporations and foreign corporations with permanent establishments (PE) that is a Constituent Entity (CE) of a multinational enterprise (MNE) group with total consolidated revenue of 100 billion yen or more in the preceding fiscal year must submit a Notification for Ultimate Parent Entity, a Country-by-Country Report, and a Master File to tax authorities.

Due dates and respective threshold:

In General, Japan does not have transfer pricing safe harbors.
However, with respect to low value-adding service transactions between related parties that do not involve valuable intangibles, the cost-plus method would be the most appropriate method and a 5% cost mark-up would be the arm’s-length price.

Please be aware below Warning:
The above contents are digested by Evershine R&D and Education Center in October 2021.
Regulations might be changed as time goes forward and different scenarios will adopt different options.
Before choosing options, please contact us or consult with your trusted professionals in this area.

Contact Us

Tokyo Evershine BPO Service Limited Corp.

E-mail: tyo4ww@evershinecpa.com
Contact : Andrea Kyu, speak both Japanese and Mandarin
Onarimon Yusen Building 7F,Nishi-Shinbashi 3-23-5,Minato-ku, Tokyo 105-0003, Japan

or
For investment structure relevant to multi-national tax planning and Financial & Legal Due Diligence for M&A (Merge and Acquisition), send an email to HQ4tyo@evershinecpa.com
Dale Chen, Principal Partner/CPA in Taiwan+China+UK will be accountable for your case.
Email address:dalechen@evershinecpa.com
Linkedin address: Dale Chen

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