|Baker & McKenzie|
|Deloitte Tohmatsu Tax|
|EY Shinnihon Tax|
|PwC Tax Japan|
|Nagashima Ohno & Tsunematsu|
|Tokyo Kyodo Accounting Office|
|Kojima Law, Taxand Japan|
BEPS is an ongoing issue in Japan and to manage this new environment taxpayers are focusing on their transfer pricing documentation, namely country-by-country reporting (CbCR), and also their general tax governance, including maintaining a good understanding of the compliance process, being up-to-date with new laws, and being aware of audit risk.
The revised TP documentation rule is having a huge impact on the Japanese tax market. The CbCR legislation, which also requires master file and local file, came into effect in March 2016. Practitioners have described the advanced TP documentation as "very cumbersome". "Administrative burdens for big multinationals have increased significantly," said Makiko Kawamura, head of tax at DLA Piper.
Advance pricing agreements (APAs) are also an important issue in Japan. Japanese corporations are increasingly utilising APAs to provide certainty over their transfer pricing policy, with the government encouraging them to apply to the scheme. "It is relatively easy to reach agreement with US and European countries but difficult with emerging countries," said head of tax at Grant Thornton, Yoichi Ishizuka.
Tax planning activities are gaining more media attention in light of BEPS which, combined with more complicated rules, makes some corporations reluctant to do aggressive tax planning. Although tax planning is still important for multinationals to achieve their competitiveness, the transfer pricing advisers see that the tax liability gap is becoming wider in Japan.
Tax authorities have increased the number of tax audits for transfer pricing but the taxable amount has decreased meaning that the related case is becoming smaller. This comes from the tax authorities changing their focus to smaller companies.
"Large corporates already have APA arrangements, together with documentation protection which considerably lessen challenges by tax authorities. Furthermore, traditionally, only tax auditors in regional tax bureau were involved in transfer pricing audits but now local tax offices are also involved in transfer pricing audits focusing on small taxpayers," said Ishizuka.
Advisers predict this trend of increased transfer pricing focus will continue for a while for both the authorities and the taxpayers. "Japanese corporates have a lot of experience in transfer pricing and BEPS is a continuation of that. They are just trying to follow the new rules introduced by BEPS," said Yuichi Komakine, head of tax at KPMG.
National Tax Agency (Japan)
Tokyo Regional Taxation Bureau
5 Chome-3-1 Tsukiji, Chuo, Tokyo 104-8449
Tel: +81 3-3542-2111
(As of January 1 2016)
|Corporate income tax rate||23.9% (a)|
|Capital gains tax rate||23.9% (a)|
|Branch tax rate||23.9% (a)|
Withholding tax (b)
|Royalties from patents, know-how, etc.||20% (c)|
|Branch remittance tax||n.a.|
Net operating losses (years)
Source: EY 2016 Worldwide Corporate Tax Guide