Japan: Country-by-country reporting requirements

Japan: Country-by-country reporting requirements

A new transfer pricing regime in Japan, effective 1 April 2016, generally puts into effect the provisions under Action 13 of the OECD’s base erosion and profit shifting (BEPS) project requiring country-by-country (CbC) reporting.

Related content

CbC reporting requirements

Taxpayers required to submit a CbC report are:

  • Domestic corporations that are the ultimate parent companies of multinational entity (MNE) groups whose consolidated revenues are JPY 100 billion or more 
  • If the ultimate parent company of the MNE group is located in a country that does not have in effect an agreement for the exchange of information with the Japanese tax authority, then domestic corporations (not the ultimate parent company) or foreign corporations of an MNE group that have permanent establishments (PEs) in Japan 

In addition, domestic corporations of MNE groups and foreign corporations of MNE groups that have PEs in Japan are required to submit the basic information of the ultimate parent company including the name, the principal place of business or the place of control over the business, the name of the representative person, and enterprise identification number (if available). 

  • Submission requirement: The CbC report is an electronic submission, to be made via an internet-based system known as “e-Tax.” A multinational company that has consolidated revenue that is less than JPY100 billion in the preceding fiscal year is exempt from this requirement.
  • Deadline: A taxpayer must submit the CbC report in the year following the fiscal year-end of the ultimate parent company of the multinational corporation group. For example, a Japanese ultimate parent company with a fiscal year-end of 31 March 2017 must submit the CbC report by 31 March 2018. The first submission requirement applies for the fiscal year starting on or after 1 April 2016. 
  • Language: The CbC report is required to be prepared in English.
  • Penalty: A maximum penalty of JPY 300,000 may be imposed when a taxpayer fails to submit the CbC report.  

Master file

Taxpayers required to submit a Master file are domestic corporations of MNE groups and foreign corporations of MNE groups that have PEs in Japan.

  • Submission requirement: Electronic submission of the Master file is required via the internet-based system, “e-Tax.” A multinational company that has consolidated revenue less than JPY100 billion in the preceding fiscal year is exempt from the submission requirement.
  • Deadline: A taxpayer must submit the Master file in the year following the fiscal year-end of the ultimate parent company of the multinational corporation group. This is the same requirement as for the CbC report.
  • Language: The taxpayer is required to prepare the Master file in either Japanese or English.
  • Penalty: A maximum penalty of JPY 300,000 may be imposed when a taxpayer fails to submit the Master file.  

Local file

There is no requirement for the scheduled submission of the Local file. However, a taxpayer must prepare the Local file on a contemporaneous basis and must keep it for seven years. The recordkeeping requirement can be extended to 10 years under certain circumstances.

A taxpayer with intercompany transactions less than JPY 5 billion (i.e., the total amount of both payment and receipt) and intangible transactions of a value of less than JPY 300 million is exempt from the Local file requirement.  Taxpayers must begin to prepare the first Local file for the fiscal year starting on or after 1 April 2017.

  • Due Date: The Local file must be prepared on a contemporaneous basis; therefore, it must be prepared by the due date for filing the taxpayer’s tax return.  Further, upon request from the tax examiner, the Local file must be submitted within a “reasonable period.” A taxpayer must submit the Local file within 45 days upon request by the tax examiner, and the information or documents to calculate the arm’s length price that are the basis of the Local file must be provided within 60 days upon request.
  • Penalty: A penalty may be imposed when a taxpayer fails to submit the Local file. This penalty is a “presumptive taxation” that will be imposed when there is a failure to submit the Local file (or information or documentation that would be the basis of the Local file). In other words, the presumptive taxation when a taxpayer fails to submit the Local file will serve as the penalty for a failure to submit the Local file.

KPMG observation

The deadline to prepare the Local file is the same date as the due date for filing the return, and this is a “tight” deadline in Japan. The taxpayer has only about three months after the fiscal year-end to prepare the tax return (when the consolidated tax return is not elected) including an extension. Therefore, advance preparation—including the preparation of the template, etc.—would be prudent. 

Further, the new transfer pricing regulation introduces a penalty when there is a failure to submit the required documentation. The penalty relating to the CbC report and Master file requirements will be imposed when the submissions are late. The penalty for the Local file, however, will be imposed only when a taxpayer fails to submit the documentation within a certain period of time after a request made by the tax examiner.  

Lastly, the submission of the CbC report and Master file is required “electronically.” This means that tax authorities of countries having tax treaties with Japan may easily exchange the data and develop a database of taxpayers in each jurisdiction. Therefore, the ultimate parent company of a multinational corporation would want to reconfirm that its transfer pricing policy is globally consistent and is consistently described in each jurisdiction. One option may be for the parent company to re-establish the transfer pricing policy and define what is to be included in the Master file to avoid potential misunderstandings with the tax authorities before preparing the three-tiered documentation.

 

For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services group:

Koichiro Fujimori | +81362298050 | koichiro.fujimori@jp.kpmg.com

Steve Wrappe | +1 408 367 4185 | swrappe@kpmg.com

Yuri Numata | +1 202 533 5381 | yurinumata@kpmg.com

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Request for proposal

 

Submit

KPMG's new digital platform

KPMG International has created a state of the art digital platform that enhances your experience, optimized to discover new and related content.