Japan: Introduction of Stringent Transfer Pricing Documentation Requirement

Last Updated: 13 September 2016
Article by Koichi Inoue, Taku Osawa, Takako Yako and Kyosuke Katahira

Attention: Foreign Parent Companies with Japanese Subsidiaries and Japanese Subsidiaries of Multinational Enterprises

A recent 2016 tax reform in Japan ("Reform") has introduced stringent Japanese Transfer Pricing Documentation Requirements, which require the preparation/filing of: (i) a Master File, (ii) a Country-by-Country Report, and (iii) a Local File, as well as (iv) a "Notification of the Ultimate Parent Entity." Any ultimate parent company ("Parent Co") of a multinational enterprise with group consolidated revenues of JPY 100 billion (approximately USD 1 billion) or more ("MNE") having a Japanese subsidiary should pay due attention to the new requirements.

The Reform notably requires any MNE with a Japanese subsidiary ("Sub Co") to prepare and file a Master File with the Japanese tax authorities through Sub Co. As long as the MNE meets the JPY 100 billion threshold, Sub Co will have to file the Master File with the Japanese tax authorities regardless of how small Sub Co is and whether or not Parent Co's home country has introduced the same or similar Master File documentation requirements. It should be especially noted that a failure to file the Master File would be subject to a sanction by criminal penalty (i.e., a criminal fine ranging up to JPY 300,000).

The Master File itself must be prepared in accordance with Parent Co's fiscal year starting on or after April 1, 2016. Following the end of the Parent Co's fiscal year, the Sub Co must submit the Master File to the appropriate Japanese tax authorities by the applicable submission deadline, which is one year after the end of the Parent Co's relevant fiscal year. For example, if the fiscal year of Parent Co is a calendar year, the rule will be first applied to the fiscal year beginning on January 1, 2017, and the relevant submission deadline will be December 31, 2018. If there are two or more Sub Cos, any one Sub Co may submit the Master File on behalf of all Sub Cos.

The Master File may be prepared in either the Japanese or English language and must be submitted electronically. The Master File must contain: (i) the MNE's organizational structure chart; (ii) the MNE's description of businesses with a brief written functional analysis of individual entities in the group; (iii) relevant information about the MNE's intangibles (including the MNE's overall strategy, list of intangibles and owners thereof, list of important intercompany agreements relating to intangibles, and transfer pricing policies relating to R&D and intangibles); (iv) the MNE's intercompany financial activities; (v) the MNE's annual consolidated financial statements; and (vi) the MNE group's existing unilateral APAs and other tax rulings.

In addition, the same rules pertaining to the Master File are applicable to the filing of a Country-by-Country Report, which must contain tax information for each jurisdiction where the MNE operates. Sub Co will, however, be exempt from filing the Country-by-Country Report, provided that the Japanese government may obtain a copy of the Country-by-Country Report from the relevant treaty partner through the exchange of information provisions of its tax treaties.

Further, any Sub Co that is subject to the filing obligation of a Master File also will have to submit the "Notification of the Ultimate Parent Entity" with the Japanese tax authorities by the end of Parent Co's applicable fiscal year. The Notification describes only the name, the registered address or the place of control, the name of the representative, and the corporate number of the Parent Co. Sub Co is required to submit the Notification to the pertinent Japanese tax authorities by the end of each fiscal year of the Parent Co beginning on or after April 1, 2016 (i.e., the first deadline is one year earlier than the Master File deadline).

Finally, if Sub Co's annual transaction amount with any of its foreign affiliates equals JPY 5 billion (approximately USD 50 million) or more, or Sub Co's annual transaction amount for intangibles with any of its foreign affiliates equals JPY 300 million (approximately USD 3 million) or more, then Sub Co will be required to prepare a Local File (i.e., documents necessary for calculating the arm's-length prices for the above transactions) by the filing deadline for its corporate tax return and to keep all Local Files created within a seven-year rolling period. In the event of a tax audit, Sub Co will be required to submit the Local File within 45 days upon request from a tax auditor. While Sub Co's failure to prepare or submit the Local File will not be sanctioned by criminal penalty, a failure to submit the Local File will likely result in the receipt of unfavorable transfer pricing assessments (i.e., using so-called secret comparables) by the Japanese tax authorities. The rule is applicable to the Sub Co's fiscal years beginning on or after April 1, 2017.

In view of the above, it is advisable for any entity affected by the Reform to prepare for the forthcoming implementation of the above Japanese Transfer Pricing Documentation Requirements by assessing the potential cost and burden of future compliance with the Reform. Depending upon the particular facts and circumstances, we may be able provide a cost-effective simplified transfer pricing solution to those entities affected by the Reform.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions