Grant Thornton is a global network of 76,000 people in member firms in 156 markets, with one common goal — to help you realise your ambitions. Our member...
Whether you’re growing in one market or many, looking to operate more effectively, managing risk and regulation, or realising stakeholder value, our firms can help.
In a world that wants more options for high quality services, we differentiate in the market to grow sustainably in today’s rapidly changing environment.
Grant Thornton International Ltd acts as the coordinating entity for member firms in the network with a focus on areas such as strategy, risk, quality monitoring and brand.
The global leadership team (GLT), chaired by the GTIL CEO is a full-time management group dedicated to leading the network in the successful execution of the...
The relationship between a company and its auditor has changed. Organisations must understand and manage risk and seek an appropriate balance between risk and opportunities.
At Grant Thornton, we have a wealth of knowledge in forensic services and can support you with issues such as dispute resolution, fraud and insurance claims.
We work with entrepreneurial businesses in the mid-market to help them assess the true commercial potential of their planned acquisition and understand how the purchase might serve their longer-term strategic goals.
We can support you throughout the transaction process – helping achieve the best possible outcome at the point of the transaction and in the longer term.
We can assist you with a variety of sustainability advice depending on your needs, ranging from initial strategy development, reporting and compliance support, through to carbon measurement and management.
Our services can strengthen your business and stakeholders' confidence. You'll receive professionally verified results and insights that help you grow.
Our global assurance technology platform provides the ability to conduct client acceptance, consultations and all assurance and other attestation engagements.
Our sustainability assurance services are based on our global network of specialists, helping you make more efficient decisions for the good of your organisation.
Through our global organisation of member firms, we support both companies and individuals, providing insightful solutions to minimise the tax burden for both parties.
Using our finely tuned local knowledge, teams from our global organisation of member firms help you understand and comply with often complex and time-consuming regulations.
The laws surrounding transfer pricing are becoming ever more complex, as tax affairs of multinational companies are facing scrutiny from media, regulators and the public
Through our sustainability tax advisory services, we can advise how environmental taxes, incentives, and obligations can impact your progress, requiring alignment with governmental and legislative pressures.
We offer an extensive range of services to automotive sector stakeholders from supply chain through to distribution, retail and usership. With a variety of...
History has something important to tell us about the difficulties of steering a business to long-term success – through seismic shifts in technology, consumer demands and product development. With that in mind it’s unsurprising that over half the world’s largest companies in the early 1900s had shut their doors by the late 1990s. Some, however, have endured.
Following world events such as the COVID-19 pandemic, Brexit, and changes to regulation and digitalisation, insurers must be alert to the challenges ahead.
We help businesses navigate today’s changing private equity landscape, ensuring that you can respond to ever-changing regulations and investor demands.
When the global COVID-19 pandemic stormed across the globe in early 2020, the private equity sector was hit hard but deals are coming back to the market.
Nervous about partnering with Private Equity? We explore some of the common myths we come across when speaking to mid-market businesses about PE investment.
Jessica Patel, Tax Partner at Grant Thornton UK speaks with tax partners and directors across the network to share their insights on the real estate market and some of the challenges.
Jessica Patel, Tax Partner at Grant Thornton UK speaks with tax partners and directors across the network to share their insights on the real estate market and some of the challenges.
The past two years saw the retail industry experience significant disruption, however there will still be opportunities to effectively reposition for future...
Businesses are seeing rising challenges, and finance heads are dealing with a range of new measures. To say the next 12 months are critical for businesses is an understatement.
In this article, we’ve summarised key elements of the global tax reform proposals, their potential impact on technology industry and advice from our digital tax specialists on what technology companies can do to prepare.
Our research revealed five key trends that resonated with Technology, Media and Telecoms (TMT) industry leaders around the world. We asked a panel of our experts from UK, US, India Ireland and Germany, to give us their reaction to the findings.
Our research revealed five key trends that resonated with Technology, Media and Telecoms (TMT) industry leaders around the world. We asked a panel of our experts from UK, US, India Ireland and Germany, to give us their reaction to the findings.
Technology companies must adopt a new approach to digital risk: those that successfully develop a reputation for digital trust by demonstrating an unwavering commitment to cyber security and data privacy will be able to carve out a competitive advantage.
Figures suggest the mobile sector is maturing. While data usage continues to soar, mobile revenues are expected to flatten out over the next few years.
The COVID-19 pandemic caused unprecedented levels of disruption to the global travel industry. As this evolves, it is unclear what recovery looks like.
Optimism among global mid-market business leaders rose to 67% in the first half of this year and they are markedly more optimistic about their prospects with global optimism having increased by 8%.
For 21 years, the Women in Business report has tracked the proportion of women in senior roles in the mid-market. Progress has been made but with gender equity over 25 years away, that isn’t soon enough.
Mid-market firms are scaling sustainability for growth, not just compliance. Grant Thornton’s International Business Report (IBR) 2025 report reveals how sustainability investments are driving profitability, resilience and global expansion — despite regulatory shifts and political uncertainty.
Instability has come to define the global business landscape and the ability for mid-market firms to thrive through disruption is becoming a key differentiator.
A shifting global trade landscape is contributing to rising uncertainty, but could it also unlock new opportunites for adaptable mid-market businesses while larger companies opt to wait and see?
Women holding the CFO role is nearing parity – reshaping finance leadership and potentially helping increase female representation across all senior roles.
With seismic shifts in the global landscape, leaders must take deliberate action to propel their businesses into a more inclusive future, foster innovation,...
Women holding the CFO role is nearing parity – reshaping finance leadership and potentially helping increase female representation across all senior roles.
We saw an increase in the percentage of senior management roles held by women, on a global level, but there are some significant regional and country variations.
Mid-market firms are scaling sustainability for growth, not just compliance. Grant Thornton’s International Business Report (IBR) 2025 report reveals how sustainability investments are driving profitability, resilience and global expansion — despite regulatory shifts and political uncertainty.
The world needs a sustainable mid-market. It’s vital to economies, societies and the
planet. Businesses, governments, and other stakeholders must work collaboratively to make
sure this vital part of the world economy succeeds.
As organisations in the private sector make commitments and plans to reach net zero, there's a growing need for stakeholders to be able to assess the credibility of their transition plans.
Instability has come to define the global business landscape and the ability for mid-market firms to thrive through disruption is becoming a key differentiator.
A shifting global trade landscape is contributing to rising uncertainty, but could it also unlock new opportunites for adaptable mid-market businesses while larger companies opt to wait and see?
Across the globe, companies’ tax affairs are facing increasing scrutiny from regulators, communities and clients. Read our latest insights ranging from BEPS to...
Growing businesses that send their greatest assets – their people – overseas to work can face certain tax burdens, our global guide highlights the common tax rates and issues.
Helping you easily find everything you need to know about the rules and regulations regarding transfer pricing and Country by Country reporting for every country you do business with.
Global transfer pricing guide
Transfer pricing - Japan
01 Jan 20257 min read
This publication provides a high-level overview of Japan's transfer pricing rules and outlines who to contact for expert guidance in this area.
Contents
Introduction to transfer pricing in Japan
The Japanese transfer pricing (TP) legislation is in the Article 66-4 of Act of Special Measures Concerning Taxation, and is based on the arm’s length principle as per Article 9 of the OECD Model Tax Convention on Income and Capital, i.e. it follows the OECD Guidelines updated in July 2022.
The TP rules apply to Japanese taxpayers, including Japanese branches of overseas companies and PEs.
If the transfer price setting of the taxpayer does not meet the arm’s length standard, the taxpayer adjusts its tax return or settles a price adjustment. The tax return adjustment is a “one-way street”, i.e. upwards-only adjustments are permitted.
The preparation of transfer pricing documentation (i.e. Local file) is mandatory.
Japan has implemented CbCR (Country by Country Reporting) and Master file for the multinational enterprise groups with a consolidated total revenue for the Ultimate Parent Entity's preceding fiscal year of 100 billion yen or above.
The most appropriate pricing method should be selected on a transaction by transaction basis, providing the most reliable measure of an arm’s length result in each case. The current OECD methods, namely the comparable uncontrolled price method, resale price method, cost plus method, transactional net margin method, profit split method, and discounted cash flow method are all accepted but the method used must be in line with the functional and risk profile of the entity.
In the past, three-“traditional transaction methods” (comparable uncontrolled price method, resale price method, cost plus method) was prioritized over other method, however in the tax reform in 2013, revision was made to select the most appropriate transfer pricing method from all method.
Transfer pricing documentation
Japan follows the OECD transfer pricing documentation model based on the Master File and Local File (BEPS Action 13) approach.
The Master file should be submitted to the competent District Director via electronic tax filing within one year of the day following the one when the Ultimate Parent Entity’s fiscal year ends.
Multinational enterprise groups with a consolidated total revenue for the Ultimate Parent Entity's preceding fiscal year of less than 100 billion yen are exempted from the submission of the Master File.
Penalty will be imposed for failure to submit a Master File to the District Director by the deadline without good reason.
The preparation of transfer pricing documentation, i.e. Local file is mandatory.
If National Tax Agency requests transfer pricing documentation, the taxpayer has a deadline of 45 days in which to respond.
In the following cases, tax payers are exempted from the duty of transfer pricing documentation: A) If the amount of transactions (total of receipts and payments) with a foreign-related party during the previous business year (the current business year if there was not the previous one) was less than five billion yen, and B) If the amount of transactions of intangibles (total of receipts and payments) with a foreign-related party during the previous business year (the current business year if there was not the previous one) was less than 300 million yen. However, if the NTA requests transfer pricing documentation, the taxpayer would have a deadline of 60 days in which to respond.
NTA follows the OECD guidelines for the Master and Local file structure.
NTA stipulates that the Local file should include following information;
Details of the intercompany transaction under analysis (such as assets and services relating to the intercompany transaction under analysis, functions performed or risks assumed by the company, analysis of the market of the inventory assets regarding intercompany transaction, details of the business strategies of the companies, and profit and loss of the companies, etc.).
Documents used by the company for the determination of the arm's length price (such as selection process of comparable transactions adopted by the company, details of the comparable transactions, reasons for adoption of the TP methodologies to determine the arm's length price, and any other document prepared by the company for determining the arm's length price, etc.).
The Japanese Local file must be preserved for seven years from the day following the deadline for submission of the final returns.
High risk business models such as commissionaires.
Limited risk distributor and contract services/ contract R&D arrangements could also potentially be challenged, especially where significant people functions are in Japan.
If the Local File, is not submitted upon request, the tax inspector is allowed to exercise their rights to assess and impose taxation by use of secret benchmark comparables and/or additional tax estimation. Taxation by estimation allows the tax inspector to estimate transfer prices without reference to the taxpayer’s own transfer pricing method, used. Theoretically, taxation by estimation may not be consistent with the arm’s length nature as it may also be based on other transactions between affiliated parties.
Where there is a failure to submitting a CbCR and Master file, a penalty of 300,000 Japanese Yen will be imposed.
Economic analysis and how to demonstrate an arm’s length result
In order to search for comparable transactions, both internal comparable transactions (transactions related to comparable products between a member of the group and a third-party) and external comparable transactions (transactions related to comparable products between an unrelated party and another third-party) are to be examined.
NTA accepts the use of interquartile range calculated based on either an excel formula or the formula specified by the US Internal Revenue Service. While the average of the comparable transaction’s value would be considered by NTA to be the arm's length price, if the value of intercompany transaction under analysis is within the interquartile range, NTA does not request an pricing adjustment.
Transfer pricing for intra group services are classified into A) services incidental to core business, no mark-up on total cost: B) routine and support services with limited risk as non-core business, a 5% mark-up on total cost as long as certain terms and conditions are met: and C) other services not categorized to A) and B), most appropriate TP method.
Advance Pricing Agreements (APAs), dispute avoidance and resolution
An Advance Pricing Arrangement (APA) is an arrangement based on an application from a taxpayer, NTA confirms in advance a set of criteria such as methods, comparables and associated adjustments, and critical assumptions regarding future events for the determination of the transfer pricing for intercompany transactions over a fixed period of time.
NTA recommends bilateral APAs over unilateral APAs.
There were around 158 cases agreed in 2023 and the average time taken to negotiate them was 35.8 months.
The company shall amend taxable income on its final tax return or promptly file amended tax returns for upward profit adjustments and the NTA does not apply a secondary adjustment to this.
For downward adjustments, the company may amend taxable income on its final tax return or file a request for an amendment of the tax return.
Exemptions
CbCR and Master file: multinational enterprise groups with a consolidated total revenue for the Ultimate Parent Entity's preceding fiscal year of 100 billion yen or above are exempted.
Related developments
New rules regarding hard-to-value intangibles (HTVI) was implemented in Japanese 2019 tax reform. The rules allow tax authorities to make an adjustment to the pricing of certain transactions where there is a significant deviation of actual financial outcomes from the forecasts used to price the transaction.
Discount Cash Flow method (DCF method) was included in TP method in the Japanese 2019 tax reform.
DCF method can be useful when:
It is difficult to find a comparable transaction and;
It is difficult to apply the profit split method due to the type of the intercompany transaction,
However, as DCF method relies on uncertain factors such as the projected amount at the time of purchase, if there are multiple other potential transfer pricing methods that can be used, including the DCF method, one of the other transfer pricing methods should be selected, instead of the DCF method.
In 2023, there were 125 cases of tax inspections on transfer pricing, which represented a 16.1% decrease compared to the previous year.
The total amount of amendments resulting from transfer pricing audits amounted to 51 Billion Japanese yen, a 31% increase from the previous year.
The simplified and streamlined approach for assessing transfer pricing of distribution transactions (Amount B) is not be introduced in Japan. Instead, the government will consider how to respond based on international discussions and trends in each country. However, the tax authorities will respond in line with international agreements under the tax treaty, if the jurisdiction of the overseas party in a related party transaction implements this approach.
Contact us
For further information on transfer pricing in Japan please contact:
