Transfer Pricing Services
Multinational companies are operating in an increasingly regulated environment. International standards supported by OEC (Organisation for Economic Co-operation and Development) countries have set the tone for increased transparency, documentation and disclosure through country-by-country (CbC) reporting under the Base Erosion and Profit Shifting (BEPS) Project. These initiatives require companies to report information about their operations across multiple jurisdictions and consider their transfer pricing methodologies and related risks. Even with the right record-keeping and support, tax audits over transfer pricing can still occur. To mitigate risks in this environment, taxpayers need to analyse their transfer pricing arrangements and maintain appropriate documentation.
In Japan, all taxpayers who engage in cross-border related party transactions are required to submit a Local File upon request as part of an audit. Additionally, certain taxpayers are required to prepare their Local File contemporaneously (i.e. by the due date of the tax return, which is typically three months after the fiscal year end). Even if the amount of your cross-border related party transactions is below the threshold for contemporaneous preparation, you will still need to submit a Local File if requested during an audit.
When selecting companies to audit, Japanese tax authorities are relying more and more on information provided by Local Files. Tax examiners have also been aggressively enforcing the deadline for the submission of the Local File as part of a tax audit. This aggressive enforcement applies regardless of the contemporaneous preparation requirement (i.e., regardless of the amount of intercompany transactions). If a company fails to meet the submission deadline, tax examiners can use presumptive taxation or secret comparables to raise their assessment.
We can assist you with the preparation of a Local File in compliance with Japanese transfer pricing legislation—either from scratch or by using template reports and relevant documents provided by your ultimate parent entity.