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Japanese Transfer Pricing Law Amended and Interpretative Material Issued

Japan Inbound Tax & Legal Newsletter August 2019, No.41

Tax law amendments that passed the upper house of Japan’s legislature in the spring contain some of the most significant changes to Japanese transfer pricing rules in recent years. The amendments to the transfer pricing law, which were first announced in December 2018 as part of the 2019 tax reform package, are effective for fiscal years beginning on or after 1 April 2020. Subsequent to the amendments to the law, the interpretative circulars and National Tax Administration (NTA) Transfer Pricing Directives were updated, and an explanatory memorandum was issued by the Ministry of Finance.

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A previous edition of our newsletter explored the changes to the law as proposed at the time of the announcement, and this newsletter summarizes the final amendments and the interpretative guidance, and considers the practical implications of each amendment.
The amendments make the following five changes to Japan’s transfer pricing law.
This newsletter explains these topics;

1. Clarification of the definition of intangible assets;
2. Introduction of the discounted cash flow (DCF) method for calculating the arm’s length price;
3. Introduction of the OECD’s “hard to value intangibles” (HTVI) approach into Japanese domestic law;
4. Formalization of the interquartile range in Japanese law; and
5. Extension of the statute of limitations relating to transfer pricing.  
 
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* This Article is based on the relevant Japanese or specific country’s tax law and other authorities in effect on the date of this Article. This Article would not be guaranteed updating if there are any changes in Japanese tax law, any other law, or interpretations by the courts or tax authorities thereof after the date of this Article.

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