Tax controversy update vol. 17 - Latest Developments in the Simultaneous Audits of Corporate Tax and Transfer Pricing ～Start of the New Fiscal Year at the National Tax Agency～

The new fiscal year at the National Tax Agency (NTA) began in July 2024. However, in the month prior, even before the NTA’s annual personnel reshuffle, many companies received requests to prepare all required documentation and schedule tax audits from July onwards. The NTA seems to be taking a much more proactive approach compared to a year ago. It appears to no longer be in COVID-19 mode and even more active than before.

Early Identification of Transfer Pricing Issues

A key point to note is the early identification of transfer pricing issues. In simultaneous audits, it appears that tax auditors aim to address transfer pricing issues alongside corporate tax audit issues. However, there are many cases where response times have shortened. One regional tax bureau has made it common practice to identify issues within three to four weeks of the audit start date.

Amended Tax Returns in Transfer Pricing

In these cases, it leads to a suggestion to file amended tax returns rather than reassessments. There are reasons to be cautious when filing amended tax returns related to transfer pricing. Firstly, reaching a mutual agreement can become difficult, significantly limiting the path to eliminating double taxation. Secondly, since the authorities expect tax returns in subsequent years to be filed at the amended price level, there is a high possibility of an immediate suggestion for amended returns if this price level is not maintained, thereby increasing the likelihood of continued double taxation.

Additionally, it is important to note that not only reassessment cases but also tax return amendments by taxpayers may, as seen in other cases, be the subject of media coverage.