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International transfer pricing developments: Japan

Tax reform enacted in 2010 included amendments to Japan’s transfer pricing rules specifying the documentation that must be provided by taxpayers in response to a request from Japan’s National Tax Agency (NTA). Taxpayers failing to respond with the specified documentation in a timely manner risk treatment under Japan’s presumptive taxation rules. These rules can be disadvantageous to the taxpayer as they afford examiners broad discretion to make assessments including the ability to make income adjustments or apply a pricing method without consultation or input from the taxpayer or to use secret comparables.

In Japan’s environment co-operation and timely compliance with examiner requests are considered the norm and tend to result in more flexible treatment. Prior to the reforms the documentation to be provided by taxpayers was not expressly stated in the law as an obligation of the taxpayer but listed only in the...

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