Updates to Japanese Transfer Pricing Regulations 2019-2020

Japan tax alert 04 December 2020

Executive summary

Over the last year and a half, the Japanese government has issued a series of revisions to the laws and regulations regarding transfer pricing. In March 2019, the Japanese government passed its 2019 Tax Reform Proposals into law, revising the primary and secondary legislation on transfer pricing (“the revised legislation”). In June 2019, the administrative guidance on transfer pricing was also updated (“the revised guidance”), providing further interpretation and explanation of the new legislation. 

On 28 June 2020, the National Tax Agency ("NTA") released their commentary on the Special Taxation Measures Law Circular (“the STMLC commentary”), providing additional explanations and the rationale for the changes made. In the same month, the NTA updated the guidance entitled “Documents recognized as necessary for the calculation of the arm’s length price (Local file guidance)” (“the local file guidance”).

Contents

1. Definition of intangible assets subject to transfer pricing
2. Introduction of the DCF method as a transfer pricing method
3. Transfer pricing adjustments relating to transactions involving hard-to-value intangible assets (HTVI)
4. Interquartile Range
5. Changes to statute of limitations