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Transfer Pricing News
www.pwc.com/jp/e/tax
Japan announces new consultation services and guidance for preparing contemporaneous transfer pricing documentation September 2017
In brief
In June 2017, the National Tax Agency (NTA) published a new guidebook, “NTA Transfer Pricing Guidebook for Taxpayers” (the Guidebook), and announced new consultation services and visits to taxpayers to support taxpayers required to prepare Local File transfer pricing documentation contemporaneously. http://www.nta.go.jp/kohyo/press/press/2016/kakaku_guide/index.htm (Japanese only) Guidance and support for taxpayers is welcome, and the Guidebook explains that the new consultation services and taxpayer visits are voluntary and for administrative purposes only and are not treated as investigations or tax audits. However, the consultation services and taxpayer visits will be conducted by staff trained as tax examiners and taxpayers will not receive any written or formal advice. A note will be made of any oral guidance provided however, and the NTA will retain this together with other information provided by taxpayers in its general management of tax affairs. It is therefore recommended that Taxpayers seek professional advice before deciding whether to meet with the NTA to discuss Local File transfer pricing documentation.
In detail
In 2015, the Organisation for Economic Cooperation and Development (OECD) published final reports for the 15 actions identified in the OECD’s Base Erosion and Profit Shifting (BEPS) project. Action 13 Transfer Pricing Documentation recommended several new transfer pricing documentation concepts, including the contemporaneous preparation of Local File Documentation. Japan implemented these recommendations as part of the 2016 tax reform, and the NTA has since published the Guidebook to help taxpayers who are now required under the law to prepare Local File transfer pricing documentation contemporaneously for fiscal periods beginning on or after April 1, 2017. The Guidebook comprises three chapters. In the first chapter the NTA discusses the taxation of multinational companies (MNCs) and introduces new policies regarding consultation services and taxpayer visits. In the second chapter, the NTA explains a number of matters that taxpayers should consider when applying transfer pricing policies. The third chapter provides two sample Local File reports.
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Chapter 1 – Support for taxpayers required to prepare Local File transfer pricing documentation contemporaneously In Chapter 1 of the Guidebook the NTA introduces two new procedures for taxpayers required to prepare contemporaneous Local File transfer pricing documentation: consultation services and taxpayer visits. The consultation services will be conducted at desks installed in Regional Taxation Bureau offices, at which taxpayers may seek oral advice regarding the contemporaneous preparation of Local File transfer pricing documentation. For enquiries from companies outside the jurisdiction of the Regional Taxation Bureaus in Tokyo, Osaka, Nagoya and Kanto-Shinetsu, the Tokyo First Large Enterprise Examination Department will act as a helpdesk though which taxpayer questions may be routed. The Guidebook provides examples of topics on which taxpayers may seek advice, including how to undertake a functional analysis, how to select a transfer pricing method when determining arm’s length prices, and how to select a range for a target profit margin. In addition to the consultation services, which are arranged on request by taxpayers, the NTA may in turn request to visit taxpayers required to prepare Local File transfer pricing documentation contemporaneously, to assess the progress of those taxpayers’ preparation and provide them with advice. To date, taxpayer visits have primarily targeted:
● Japanese headquartered companies engaged in transactions with foreign related parties; or Japanese companies that are engaged in transactions with foreign subsidiaries, regardless of where the MNC is headquartered; and
● Companies that have not historically prepared transfer pricing documentation (i.e., such documentation has not been submitted in past audits).
The Guidebook explains that the consultation services and taxpayer visits are for administrative guidance only and are not treated as investigations or tax audits. The Guidebook also states that no penalties will be levied nor other disadvantages suffered if taxpayers decline to be visited, or do not provide a draft of the Local File transfer pricing documentation when requested by the NTA. However, the consultation desks will be staffed by tax examiners trained to undertake corporate tax audits, and taxpayers are requested to submit copies of draft Local File transfer pricing documentation prior to making use of the NTA’s consultation services and during taxpayer visits. Taxpayers will also be asked to explain in detail their transfer pricing policies and will not receive any written responses or formal advice from the NTA in return. Based on information disclosed by the NTA under the Act on Access to Information Held by Administrative Organisations, the NTA will retain and use the information provided by taxpayers during the consultation services and taxpayer visits in its general management of tax affairs. In addition, while taxpayer visits may be brief if the taxpayer has no questions and is comfortable preparing Local File transfer pricing documentation themselves, the NTA may request copies of that documentation, even where it is not yet completed or is still in draft. It is therefore recommended that Taxpayers seek professional advice before deciding whether to meet the NTA to discuss Local File transfer pricing documentation. Chapter 2 - Important matters to consider when applying transfer pricing policies Chapter 2 of the Guidebook explains a number of matters which taxpayers should consider when applying transfer pricing policies. The intention of the Guidebook is to explain these matters so that they may be understood by individuals without tax experience, for example general management and sales staff. Matters discussed in the Guidebook include function and risk analyses, intangible transactions, application of transfer pricing methods, inter-related transactions involving third parties, and selecting comparable transactions. Chapter 3 – Sample Local File transfer pricing documentation The final chapter of the Guidebook contains two sample reports to which taxpayers may refer when drafting Local File transfer pricing documentation.
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The first sample report involves a publicly listed Japanese company exporting products to a wholly owned overseas subsidiary. The second sample report involves a company in Japan importing products from an overseas parent company. The two sample reports are similar to the Local File transfer pricing documentation examples published in June 2016 and include analyses of functions, assets and risks in addition to taxpayer organisation charts, capital relationship charts, transaction flow diagrams, segmented profit and loss statements of both parties to the related party transaction, and descriptions of products. The commentary in Chapter 3 of the Guidebook also includes observations regarding the creation of intangible assets, noting that analyses of intangibles should focus on where the development work was undertaken, and should not rely on analyses of legal ownership and development costs alone.
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Let’s talk
For a deeper discussion of how this issue might affect your business, please contact:
PwC Tax Japan Transfer Pricing Consulting Group Kasumigaseki Bldg. 15F, 2-5, Kasumigaseki 3-chome, Chiyoda-ku, Tokyo 100-6015 Tel: 81-3-5251-2400 Email: [email protected] www.pwc.com/jp/e/tax Tokyo Kasumigaseki Bldg. 15F 2-5, Kasumigaseki 3-chome Chiyoda-ku, Tokyo 100-6015 Telephone: 81-3-5251-2400
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Daisuke Miyajima Partner 81-3-5251-2552 [email protected]
Teruyuki Takahashi Partner 81-3-5251-2873 [email protected]
Ken Kurokawa Partner 81-3-5251-2457 [email protected]
Michael Polashek Partner 81-3-5251-2517 [email protected]
Ryann Thomas Partner 81-3-5251-2356 [email protected]
Kouji Noda Partner 81-6-7670-0956 [email protected]
Ai Yoshida Partner (Osaka) 81-6-7670-0958 [email protected]
Naoki Hayakawa Partner 81-3-5251-6714 [email protected]
Tekeki Nagafuji Partner 81-3-5251-2438 [email protected]
Kenji Nakamuta Partner (Osaka) 81-6-7670-0955 [email protected]
Masatoshi Ohashi Partner 81-3-5251-6750 [email protected]
Howard Osawa Director 81-3-5251-6737 [email protected]
Toru Fujisawa Director 81-3-5251-2535 [email protected]
Kazuhito Asakawa Director 81-80-4205-7098 [email protected]
Koichi Funatani Director 81-80-3592-6066 [email protected]
Chihiro Takeuchi Senior Manager 81-80-3122-7630 [email protected]
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