Introduction of Stringent Transfer Pricing Documentation Requirement

Attention: Foreign Parent Companies with Japanese Subsidiaries and Japanese Subsidiaries of Multinational Enterprises

A recent 2016 tax reform in Japan ("Reform") has introduced stringent Japanese Transfer Pricing Documentation Requirements, which require the preparation/filing of: (i) a Master File, (ii) a Country-by-Country Report, and (iii) a Local File, as well as (iv) a "Notification of the Ultimate Parent Entity." Any ultimate parent company ("Parent Co") of a multinational enterprise with group consolidated revenues of JPY 100 billion (approximately USD 1 billion) or more ("MNE") having a Japanese subsidiary should pay due attention to the new requirements.

The Reform notably requires any MNE with a Japanese subsidiary ("Sub Co") to prepare and file a Master File with the Japanese tax authorities through Sub Co. As long as the MNE meets the JPY 100 billion threshold, Sub Co will have to file the Master File with the Japanese tax authorities regardless of