Japan is highly engaged in the OECD’s BEPS consultations due to its G20 and the OECD memberships. Tsugumasa Asakawa, the former Director General of the International Bureau of Japan’s Ministry of Finance (MOF) for Policy Planning and Co-ordination, is a former chair of the OECD’s Committee on Fiscal Affairs. The minister not only led the discussion of international tax matters at the OECD level but also actively worked with other MOF officials to garner support for the BEPS initiative domestically.
Japan currently has tax rules in place that specifically address three OECD BEPS Action Plan items:
Japanese tax law includes a general anti-avoidance rule for closely held companies that allows the Japanese tax authorities to deny a transaction that, in their view, improperly decreases the company’s tax burden due to improper or unique terms and conditions. Specific anti-avoidance provisions are in place for all companies related to corporate reorganization transactions and transactions. These rules give Japanese tax authorities similar powers as the general anti-avoidance provisions.
For international Japanese-headquartered companies, the BEPS debate and BEPS-related actions by emerging countries are spurring an unexpected attitudinal change. Historically, Japanese companies have not undertaken tax planning. Rather, they have viewed their tax contributions as a source of pride. A shift is occurring as Japanese companies contend with several factors:
As beleaguered Japanese companies perceive their share of tax as increasing, many of them are showing more interest in ways to minimize their tax burden on a global basis.
The stance of emerging economies toward allocations of profit is also driving many of Japan’s positions as the OECD BEPS Action Plan proceeds. For example, as emerging economies have increasingly sought to allocate profit for treaty purposes based on beneficial ownership (e.g., looking through holding companies in low-tax jurisdictions), Japan has become increasingly interested in preserving allocations based on legal ownership.
Similarly, it is in the interest of Japanese companies to maintain transfer pricing principles that, for example, attribute value creation to intangible asset holdings developed and held by the parent company rather than value drivers in emerging economies, such as low-cost labor pools, extensive manufacturing operations and large consumer markets.
Japanese companies also have concerns that emerging countries will use data from detailed CbyC tax reporting to further challenge the profit allocations among international groups.
However, even as Japan advocates for international tax principles best suited to global companies based in the country, Japan is expected to fully embrace the OECD BEPS Action Plan’s final outcomes.