Revision of the documentation system for transfer pricing taxation
I heard that the transfer pricing tax system has been revised in 2016 and is required to be documented. What is the outline?
Based on the recommendation of OECD’s Base Erosion and Profit Shifting(BEPS) Project, the rule of the Transfer Pricing Documentation was established.
In case that Ulitmate Parent Entity is outside of Japan, all Japanese corporations and foreign corporations with permanent establishments that is a Constituent Entity of a multinational enterprise(MNE) group with a total consolidated revenue of 100 billion yen or more in the preceding fiscal year must submit the following three types of documents to the national tax authorities through the online national tax return filing and tax payment system (e-tax).
(1) Notification for Ultimate Parent Entity
Items to be reported are the information on Ultimate Parent Entity, such as company’s name, address of the head office, and the name of representative.
(2) Country-by-Country Report
Items to be reported are the information on country-by-country operations, including amounts of revenue, profit(loss) before income tax, stated capital, and the number of employees.
The information above will be directly transmitted to Japanese by the tax authorities in which the Ultimate Parent Entity resides if an information exchange system based on the tax treaties is concluded.
(3) Master File
Items to be reported are the information on the entire business operations of the Specified MNE Group, such as organizational structure of the Group, the outline of its business operation and financial condition.
The rule above has been provided by 2016 tax reform and it applies to the documents for the Ulitmate Parent Entitiy’s fiscal year that begins on April 1, 2016 or thereafter.
In addition to the documents above, corporations engaged in below-listed transactions with one foreign-related party must prepare or obtain and store documents considered as necessary to calculate Arm’s Length Prices for the controlled transactions by the deadline for submission of final returns.
(1) If the amount of controlled transactions with foreign-related company during the previous business year is five billion yen or more
(2) If the amount of transactions of intangibles during the previous business year is 300 million yen or more
It applies to the documents for the corporation’s fiscal year that begins on April 1, 2017 or thereafter.