News Details


International Tax Reform

BEPS Project Action 13: Guidance on Transfer Pricing Documentation

List of news

1. Introduction
What is BEPS?
It stands for Base Erosion and Profit Shifting. BEPS refers to a problem of tax avoidance taken by multinational enterprises (MNE) that shift their profits to low or non­taxed jurisdictions rather than their own countries where the actual business activities have taken place. Double Irish and Dutch Sandwich is a typical example of BEPS.

In order to address this issue, the OECD started the BEPS project in 2012. Under the thought of “Level Playing Field”, the project aims to reassess the overall international tax rules by inhibiting MNE from artificial profit shifting.
In this News, We will mention the overview of BEPS Project Action 13, the “Reconsideration of Transfer Pricing Documentation.”

2. Transfer Pricing Documentation to be prepared by MNE groups
The 2016 Tax Reform set the following rules based on the OECD’s recommendation regarding the “Transfer Pricing Documentation.”
In detail, the BEPS Project Action 13 recommends three­tiered approach that includes : ①Country-by Country Report; ②Master File; and ③Local File.

① Country-by Country Report (CbC Report)
An Ultimate Parent Entity of a MNE group with the total consolidated revenue of 100 billion yen or more in the preceding fiscal year (Specified MNE Group) must submit a CbC Report with “tax jurisdiction by tax jurisdiction basis.” The CbC Report should provide the basic financial information such as amounts of revenue, profit (or loss) before tax, income tax paid, stated capital, and the number of employees.

② Master File
An Ultimate Parent entity of a Specified MNE Group must also submit a Master File. The Master File should cover the following five contents:

・The MNE group’s organizational structure
・The MNE group’s business  
・The MNE group’s intangibles
・The MNE group’s financial activities
・The MNE group’s financial conditions

③ Local File
A Local File provides the detailed description of arm’s length prices in controlled transactions including the following:

・Organizational structure 
・Management strategy
・Key competitors
・Material controlled transactions and background of such transactions
・The most appropriate transfer pricing method and the reasons for selecting that method
・Financial statements

Furthermore, Japan requires the Notification for Ultimate Parent Entity.

3. The Notification for Ultimate Parent Entity
All Japanese corporations or foreign corporations with permanent establishments that is a Constituent Entity of a Specified MNE Group are required to provide the information including the name of the Ultimate Parent Entity, the location of its head office, its corporate number, and the name of its representative via e­Tax by the end of the Ultimate Parent Entity’s fiscal year-end. This rule is applied for fiscal years beginning on or after April 1, 2016.

4. Conclusion
In this News, we have mentioned the overview of “BEPS Project Action 13: Guidance on Transfer Pricing Documentation.”

Please note that this News only introduces general outlines and does not include professional advice. So please make sure not to make any decisions without taking professional advice individually. If you have any questions, please feel free to contact us.