Japan: Introduction of Stringent Transfer Pricing Documentation Requirement

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”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.