· 9 min read

Japan – Transfer Pricing (2025)

Japan’s domestic transfer pricing framework is anchored in Article 66-4 of the Act on Special Measures concerning Taxation (ASMT), which implements the arm’s length principle for transactions between related parties (Para 1 Article 66-4 of ASMT). Administrative guidance and interpretation is provided through the Commissioner’s Directive on the Operation of Transfer Pricing (CDOTP) and the Commissioner’s Directive on Interpretation of ASMT. The CDOTP explicitly prescribes that the OECD Transfer Pricing Guidelines should be referred to during examinations and in the context of Advance Pricing Agreements (1-2(3) of CDOTP). The rules apply to controlled transactions involving foreign-related parties and other associated relationships as detailed in implementing regulations.

Arm’s length principle and the role of the OECD Guidelines

The arm’s length principle is explicitly referenced in domestic law and the CDOTP directs examiners and APA practitioners to consult the OECD Transfer Pricing Guidelines. The Commissioner’s Directive on Interpretation of ASMT is declared to be basically consistent with the OECD Guidelines and is relied upon for method selection, comparability analysis, treatment of intangibles and other technical matters (66-4(3)-3 of Commissioner’s Directive on Interpretation of ASMT).

Domestic legislation defines related parties, notably the concept of a «foreign-related party», which is a foreign corporation that has an «associated relationship» with another corporation. An «associated» relationship is deemed to exist where either company holds 50 percent or more of the total number of issued shares or the amount of investment of the other company (Para 1 Article 66-4 of ASMT; Para 1 to 4 Article 39-12 of Order for Enforcement of ASMT). The Order for Enforcement of ASMT also prescribes additional circumstances that will be treated as an associated relationship. The Commissioner’s Directive elaborates on these statutory definitions and their application.

Methods and application criteria

Japanese law and administrative directives recognise the range of transfer pricing methods comparable to those in the OECD Guidelines. The statutory framework (Para. 2 Article 66-4 of ASMT and Para. 6 to 8 Article 39-12 of Order for Enforcement of ASMT) authorises the use of Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin Method (TNMM), Profit Split and other methods. The Order for Enforcement specifically contemplates valuation techniques based on projected cash flows as an «other» method. The Commissioner’s Directive on Interpretation of ASMT and the CDOTP provide guidance on selecting the most appropriate method (Chapter 4-1, CDOTP; 66-4(2)-1 and 66-4(3)-3 of Commissioner’s Directive on Interpretation of ASMT). The Japanese framework does not mandate a strict hierarchy of methods; rather it prescribes the selection of the most appropriate method taking into account the facts and circumstances of each controlled transaction, including functions performed and risks assumed (Para. 2 Article 66-4 of ASMT).

For commodity transactions, Japan follows the guidance in paragraphs 2.18–2.22 of the OECD Transfer Pricing Guidelines, as noted in Para 2 Article 66-4 of ASMT.

Comparability and ranges

Comparability analysis in Japan largely follows Chapter III of the OECD Guidelines; the Commissioner’s Directive on Interpretation of ASMT is explicitly aligned with the TPG (66-4(3)-3 of Commissioner’s Directive on Interpretation of ASMT). There is a preference for domestic comparables over foreign comparables, with emphasis on taking market conditions into account during comparability analysis (66-4(3)-3 of Commissioner’s Directive on Interpretation of ASMT). The tax administration may use «secret comparables»: if the Local File is not presented by a prescribed date, authorities can inspect persons engaged in similar businesses and use information obtained to determine arm’s length prices (Para. 17, 18 Article 66-4 of ASMT). The domestic guidance permits the use of an arm’s length range and statistical measures; the Commissioner’s Directive provides that no adjustment should be made if the tested transaction’s price falls within the range of comparable transactions (66-4(3)-4 of Commissioner’s Directive on Interpretation of ASMT). Comparability adjustments are required where differences exist; the CDOTP identifies examples such as trade terms and settlement terms that may give rise to adjustments (Para. 2 Article 66-4 of ASMT; Para. 6 to 8 Article 39-12 of Order for Enforcement of ASMT; Chapter 4-4, CDOTP).

Documentation and reporting

Japan requires transfer pricing documentation consistent with the OECD three‑tier approach: a Master File, a Local File and a Country-by-Country (CbC) Report. The Master File requirement is set out in Para. 1 Article 66-4-5 of ASMT; the Local File obligation is in Para. 6 Article 66-4 of ASMT; and the CbC reporting obligation is in Para. 1 Article 66-4-4 of ASMT.

Timing and language rules are as follows. The Master File may be filed in Japanese or English and must be submitted to the competent District Director within one year from the day following the end of the Ultimate Parent Entity’s fiscal year (Master file Para. 1 Article 66-4-5 of ASMT; Article 22-10-5 of Ordinance for Enforcement of ASMT). The Local File has no language requirement; it must be prepared by the due date for the final tax return and retained for seven years. The Local File must be presented or submitted within a designated period if requested during an examination (Local file Para. 6, 12 to 15 Article 66-4 of ASMT; Para 6 to 8, 11, 12 Article 22-10 of Ordinance for Enforcement of ASMT). The CbC Report may be filed in English and must be submitted to the competent District Director within one year from the day following the end of the Ultimate Parent Entity’s fiscal year; notification of which entity will file the CbC Report must be given to the District Director no later than the last day of the Ultimate Parent Entity’s fiscal year (Para. 1, 5 Article 66-4-4 of ASMT; Article 22-10-4 of Ordinance for Enforcement of ASMT).

Specific penalties and compliance incentives exist. A fine of up to JPY 300,000 applies when corporations fail to submit a Master File or a CbC Report to the District Director by the deadline without good reason (Master file Para. 3 Article 66-4-5 of ASMT; CbCR Para. 7 Article 66-4-4 of ASMT). For Local Files, if not presented by the appointed date, tax authorities may issue assessments by estimation to ensure the documentation duty is met (Local file Para. 12, 14 Article 66-4 of ASMT).

Exemptions are provided based on group size and transaction amounts. Master File and CbC reporting obligations do not apply to MNE groups whose total consolidated revenue for the Ultimate Parent Entity’s preceding fiscal year is less than JPY 100 billion (Master file Para. 1 Article 66-4-5 of ASMT; CbCR Para. 1 Article 66-4-4 of ASMT; Para. 4 Article 66-4-4 of ASMT). Exemption from contemporaneous Local File requirements is available for corporations with only one foreign-related party during the business year if, in the prior business year, the total amount of transactions with that foreign-related party was less than JPY 5 billion and the amount of intangible transactions with that party was less than JPY 300 million (Local file Para. 7 Article 66-4 of ASMT).

If specific domestic guidance is not present in the country profile, the profile explicitly indicates that no additional domestic guidance is provided; in this profile the principal domestic guidance is the CDOTP and the Commissioner’s Directive on Interpretation of ASMT.

Safe harbours / exemptions / materiality

Japan does not have general safe harbour rules for particular industries, taxpayer types or transaction types as recorded in the profile. The profile also indicates there are no other simplification measures beyond those described.

APAs and MAP; procedures and timing

Japan offers Advance Pricing Agreements (APAs) and Mutual Agreement Procedures (MAPs). The country’s programme allows unilateral, bilateral and multilateral APAs and provides a bilateral APA programme which permits taxpayers to request rollbacks under certain conditions. Japan publishes clear rules, guidelines and procedures on access to and use of MAPs; further information is available in Japan’s MAP profile and the peer review documentation. The profile confirms the availability of these mechanisms but does not set out detailed statutory timelines for APA or MAP resolution within the summary provided.

Penalties and other considerations

Beyond the documentation penalties already described, Japan permits year‑end adjustments where reasonable grounds exist for treating them as arm’s length under the CDOTP guidance (Chapter 3-21, CDOTP). The country indicated in the profile that it does not apply secondary adjustments (the questionnaire response records «No» for secondary adjustments). The profile does not provide additional specific domestic rules on recharacterisation beyond the CDOTP and the Commissioner’s Directive; for detailed policy on secondary adjustments and recharacterisations, practitioners should consult those instruments.

On permanent establishments (PEs), Japan follows the Authorised OECD Approach (AOA) for the attribution of profits and has implemented the AOA in 10 tax treaties as of 1 May 2021. Where older tax treaties do not contain the updated Article 7 (OECD MTC 2010 and later), Japan applies the approach under the OECD MTC 2008.

Conclusion

Japan’s transfer pricing regime is grounded in Article 66-4 of the ASMT and is operationalised through the Commissioner’s Directive on the Operation of Transfer Pricing and the Commissioner’s Directive on Interpretation of ASMT, both of which align domestic practice with the OECD Transfer Pricing Guidelines. Japan requires Master File, Local File and CbC reporting with clear filing and retention rules, adopts the most appropriate method standard rather than a rigid hierarchy, permits the use of arm’s length ranges and comparability adjustments, and maintains administrative mechanisms for dispute avoidance and resolution including APAs and MAPs. Specific guidance addresses intangibles, HTVI, intra-group services, and financial transactions, and Japan has implemented interest limitation rules in Articles 66-5 to 66-5-3 of ASMT in line with BEPS Action 4. No general safe harbours are provided and secondary adjustments are not applied according to the profile. For technical cases, the CDOTP, the Commissioner’s Directive on Interpretation of ASMT and the OECD Guidelines provide the detailed methodologies and procedural guidance.

References

For more information and access to the OECD country profiles: https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html

Share:
Back to OECD
Disclaimer:

La información presentada en este perfil se ha generado tomando como base datos y contenidos publicados por la OCDE. Si bien se busca reflejar fielmente la información disponible, no se garantiza su exactitud ni exhaustividad y se recomienda consultar las fuentes originales de la OCDE para fines oficiales o de investigación.