Support for transfer pricing tax audits

According to statistics released by the Japanese National Tax Agency, for the period from 1 July 2022 to 30 June 2023, 149 transfer pricing assessments were performed, covering a total of JPY39.2bn. The average amount per assessment was approximately JPY260m (approximately USD1.8m). 

In July 2020, the Japanese tax authorities underwent a significant reorganization that combined the responsibilities for examinations relating to international tax and for examinations relating to transfer pricing, which previously had been separate. This change resulted in increased scrutiny of transfer pricing for certain taxpayers.

PwC Tax Japan’s Transfer Pricing Team can provide:

  • advice on strategy for transfer pricing tax audits
  • support to help you prepare for requests from the tax authorities for information documents
  • support to help you prepare for rebuttals to the tax authorities and
  • support for negotiation with the tax authorities.
Transfer Pricing Audit Statistics (2000-2019)

Common areas of focus

  • Intercompany interest payments
    • Intercompany interest payments are not historically an area of focus, so supporting documentation (e.g. benchmarking) is often ignored.
    • Given the increased focus on intercompany interest payments in audits, taxpayers should be sure to have supporting documentation in place.
  • Intragroup services (IGS)
    Taxpayers should be ready to provide:
    • evidence to show the economic benefit to the service recipient, such as
    • functional analysis or
    • documentary support, such as emails and meeting minutes.
    • costs included in the cost pool and appropriate rationale
    • allocation methodology and rationale and
    • benchmarking support for any markups
  • Penalties
    • If a tax assessment by the Japanese tax authorities reveals any underpayment, an underpayment penalty of 10-15% of the additional tax due and a delinquent tax (2.4% interest rate per annum for the period on and after 1 January 2022) are imposed.

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Our team

Goro Mizushima

Partner, PwC Tax Japan

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Takeki Nagafuji

Partner, PwC Tax Japan

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Junko Yamato

Partner, PwC Tax Japan

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Chihiro Takeuchi

Partner, PwC Tax Japan

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