Bilans d’évènement

Update on transfer pricing issues in Japan and impact of COVID-19

The Tax and Regulations Committee held a webinar devoted to “An approach to transfer pricing: arising concerns and the impact of COVID-19"

As a reminder, transfer pricing is the pricing of related-parties transactions across borders, such transactions including tangibles, intangibles, services and finance.

From the viewpoint of tax authorities, not only in Japan but worldwide, the price settings for these transactions which are “controlled transactions” must be comparable to “uncontrolled transactions” reflecting market forces between unrelated parties.

After a presentation of the correlation between functions and risks and arm’s-length profitability, the focus moved to the approach taken by the Japanese tax authorities which follow broadly the OECD transfer pricing guidelines together with an emphasis on a process oriented approach.

Furthermore, the Japanese tax authorities establish a distinction between “transfer pricing” and “donation” where an economic benefit is given without any economic return. The main consequence of such a distinction is that all matters falling within the scope of donations become domestic procedures which escape the benefits of the mutual cooperation agreement procedures established by treaties between countries in order to settle disagreements.

The impact of COVID-19 was examined in the light of the views taken by the Japanese tax authorities, including what may qualify as force majeure events.