The corporate tax rate is 30.86%. This is an illustrative effective tax rate for a company in Tokyo with stated capital of more than JPY100 million for fiscal years beginning on or after 1 April 2016. It will be reduced to 30.62% for fiscal years beginning on or after 1 April 2018. Size-based business tax is also levied on a company with stated capital of more than JPY100 million, in addition to the income-based business tax.
Transfer pricing legislation is found in the ASMT, Article 66-4 and Article 68-88 for consolidated companies. Put briefly these articles provide that a corporation (or other juridical person) that has conducted the sale or purchase of inventory, rendered services, or engaged in other transactions with a foreign related party, must do so at an arm’s-length price. In transactions where the Japanese tax authorities determine that arm’s-length principles have not been adhered to for the purposes of corporation tax, the price can be adjusted to approximate a third-party transaction. In this situation, under the legislation, the Japanese tax authorities have broad powers to recalculate the transfer price.
The National Tax Agency’s (NTA) interpretation and guidance for the application of the transfer pricing rules are set out in the related Commissioner’s Directives, i.e. Commissioner’s Directive on Interpretation of the Act on Special Measures Concerning Taxation and Commissioner’s Directive on the Operation of Transfer Pricing.
Japan generally supports the theory and practices set out in the OECD Guidelines, as confirmed by the TP Directive and in amendments to the transfer pricing legislation. A Commissioner’s Directive on the Operation of Transfer Pricing (“CDOTP”) prescribes that the OECD Transfer Pricing Guidelines shall be referred to in the course of examination or APA.