APA Program Report 2006

October 2006

National Tax Agency

Contents
1

Introduction

1

2

What Are Advance Pricing Arrangements (APAs)?

2

3

History of APAs in Japan and the World

3

4

Address at PATA

4

5

Overview of APA in Japan5（1） Definition of APA（2） Relationship between APA and MAP（3） Relationship between APA and Transfer Pricing Examinations（4） Request and Review Procedures（5） Review of APA Requests（6） Effects of APA（7） Examination of Compliance Conditions（8） Compensating Adjustments（9） Revisions, Cancellations, and Renewals（10） Rollbacks（11） Procedures for Consolidated Corporations
6

APA Process（1）

Submission of APA Request（2）

Case Review by the Regional Taxation Bureau (RTB) APA Review Group（3）

MAP Negotiations and Agreement（4）

Review of Annual Compliance Reports, etc.

11

【Chart】Flowchart of BAPA Procedure
7

Staff in Charge of BAPA Cases（1）

MAP Staff（2）

APA Review Groups

14

8

Taxpayer Cooperation in APA

15

9

Recent Development

16

（1）

Recent Development of Mutual Agreement Procedures (MAP)（2）

Recent Development of BAPA

a.

The Number of Disposed BAPAs –by Industryb.

The Number of Disposed BAPAs –by Transaction Typec.

The Number of Disposed BAPAs –by Transfer Pricing Methodsd.

The Number of Disposed BAPAs –by Regione.

Time Required per BAPA Case（3）

Recent Discussions

Attachment 1 Partner Countries of Mutual Agreement Procedure
Attachment 2 Summary of MAP Statistics
Reference

Japan’s Tax Convention Network

1. Introduction
In Japan, transfer pricing taxation was introduced in 1986.

In 1987, Advance Pricing

Arrangement (APA) started in Japan, making Japan the first country in the world to implement
such procedures.
Basic framework of transfer pricing taxation is to compute taxation income as its transactions are
deemed to be conducted by arms’ length price in case that taxation income of a corporation isdecreased since transaction between a corporation and its related parties differs from arms’ length
price.
An APA is a framework for a tax administration to indicate their administrative commitment torefraining from transfer pricing taxation if the taxpayer files its tax return in accordance with theagreed APA conditions for the APA covered years.
APAs may involve either one country only (unilateral APA), or two or more countries (bilateral APA
or multilateral APA accompanied by the Mutual Agreement Procedures (MAP), hereinafter referred
to as “BAPA”).
The National Tax Agency (NTA) is promoting BAPAs to facilitate the enforcement of transfer
pricing taxation, to mitigate the administrative burden on companies, and to ensure taxation
predictability for company management. The number of BAPAs is also increasing with theglobalization of the economy and as APAs become more widely known among taxpayers.
APA cases make up the majority of MAP cases today. This indicates that the need to prevent double
taxation before it occurs by using APA is increasing.
The usefulness of APAs is largely known among taxpayers, and the number of cases of second or
third APA has recently increased. Moreover, cases with nations without any experience in BAPA
have occurred, and BAPA has been expanded geographically.
This report outlines APA and the data concerning APA and MAP from 1 July 2005 to 30 June 2006.
Although APAs may involve one country only (unilateral APA), this report mainly focuses on BAPAs
which make up the majority of APAs in Japan. We hope that this report will deepen taxpayers’
understanding of APA administration and further promote APA.

1

2. What Are Advance Pricing Arrangements (APAs)?
As noted above, an APA is a framework for a tax administration to indicate their administrative
commitment to refraining from transfer pricing taxation if the taxpayer files its tax return inaccordance with the agreed APA conditions for the APA covered years.
The objective of APA is to ensure the predictability of transfer pricing taxation for the taxpayer byconfirming in advance the method of calculating arm’s length prices between the tax administrationand the taxpayer. This ensures the proper and smooth enforcement of transfer pricing taxation.
Transfer pricing taxation may often result in a large amount of additional taxes, and theexaminations often require a great deal of time and MAPs to resolve the double taxation. Thus, therisks involved in transfer pricing taxation for the taxpayer are generally quite high. APAs help
taxpayers involved in foreign-related transactions to prevent the risk of such transfer pricing
taxation in advance.
APAs may involve either one country only (unilateral APAs), or two or more countries (BAPAs).
Unilateral APAs confirm the method to be used to calculate arm’s length prices by the NTA for the
taxpayer in Japan. Unilateral APAs do not ensure that associated taxpayers in other countries will
avoid the risk of taxation by foreign tax administrations.
BAPAs, on the other hand, include consultations regarding the method of calculation of arm’s
length prices between the two or more tax administrations that have jurisdiction over the related
taxpayers. Its objective is to ensure the predictability of transfer pricing taxation and to prevent
double taxation. With a BAPA, the taxpayer is ensured the legal stability of both tax
administrations (or all tax administrations, in multilateral cases). This is the reason that many
countries including Japan conduct BAPAs.

Diagram of the BAPA Process

NTA

Mutual Agreement Procedures

Foreign Tax
Administration（Regional Taxation Bureaus）

APA review

APA review
APA request and MAP

APA request and MAPt
Japanese Taxpayer

Related Parties

2

Foreign Taxpayer

3. History of APAs in Japan and the WorldIn the nineteen eighties, because of development of globalization of business activities, the need toaddress income shifting through transactions between a corporation and its related parties
increased.

Some foreign countries had already prepared to address such income shifting.

Therefore, Japan introduced transfer pricing taxation in March 1986 to realize proper international
taxation in common framework with foreign countries.
APAs were first created in Japan in 1987.

APAs were developed to ensure the proper and smooth

enforcement of transfer pricing legislation by giving administrative confirmation as to the mostrational method of calculating arm’s length prices for corporations.
The United States Internal Revenue Service (IRS) also formally adopted APAs (known as “Advance
Pricing Agreements” in the U.S.) in 1991 with Procedure 91-22. Subsequently, Canada (1994), New
Zealand (1994), Australia (1995), and Mexico (1995) among other countries, all participated in APAs.
After a 1995 OECD report on transfer pricing further promoted APAs, Korea (1996), China (1998),
the U.K. (1999), France (1999), the Netherlands (1999), and Germany (2000) all joined the system,
and APAs truly became a focus of global interest1.
With this increase in global recognition, the number of APA requests has risen, and since 1994,
BAPA requests in Japan have also increased. Due to this increase in requests for BAPA, Japan’s
1987 Directive was revised in 1999, and Japan’s Commissioner’s Directive on Methods ofCalculation of Arm’s Length Prices (Administrative Guidelines) endorsing BAPA was released inJune 1, 2001. This document was superseded by the Commissioner’s Directive on the Operation ofTransfer Pricing (Administrative Guidelines) 2 (hereafter referred to as Transfer Pricing
Administrative Guidelines) and is still in effect.
Comprehensive guidelines for MAP on which BAPA cases are based were released as theCommissioner’s Directive on Mutual Agreement Procedures（Administrative Guidelines）（hereafterreferred to as “MAP Administrative Guidelines”）on 25 June 20013. The MAP Administrative
Guidelines (English version) are available on the NTA website (www.nta.go.jp).
The United States, Canada and Australia also publicize APA reports every year in its website.

1

The OECD issued the OECD/APA Guidelines in 1999, thereby committing to promoting BAPA.
Document ID: Examination Division 7-1 etc. dated 1 June 2001
3 Document ID: Office of Mutual Agreement Procedures 1-39 etc. dated 25 June 2001
MAP related to APA is regulated in the MAP Administrative Guidelines.
2

3

4. Address at PATA4
The Pacific Association of Tax Administrators (PATA) is comprised of representatives from the tax
administrations of Japan, Australia, Canada, and the United States. Committee meetings based on
the Exchange of Information articles of the applicable Convention provide a forum for theadministrations to exchange opinions about fiscal matters of common interest. PATA has committed
itself to executing MAP and BAPA. In June 2004, PATA released an amendment to both guidance
documents to handle the dramatically increased use of MAP and BAPA and subsequently, torespond to the growing demand from taxpayers for international guidance. Both guidance
documents concern the execution of MAP and BAPA, but are not binding on PATA members.
Each guidance document establishes a deadline of two years for settling MAP and BAPA cases. This
two-year timeframe does not apply to certain cases, such as cases where a taxpayer does notcooperate. Moreover, although MAP negotiations are a government-level process, the taxpayers inquestion are also permitted to participate at some sessions to provide factual information.
Guidance for MAP also applies to all mutual agreement procedures, including transfer pricing
adjustments.
Guidance for BAPA encourages and facilitates the use of BAPA among PATA members which isconsidered more desirable than a unilateral APA. Both guidance documents are also available on
the NTA website (www.nta.go.jp).

4 In January 2006 at the commissioners’ meeting including Japan, the United States, Canada, Australia, the United

Kingdom, France, China, and India held at Leeds Castle in London suburb, it was agreed to set up thecommissioners’ meeting (“Leeds Castle Group”) including above countries and Germany and Korea, and PATA was
dissolved.

45. Overview of APA in Japan
Japan’s APA procedures are regulated by the aforementioned Transfer Pricing Administrative
Guidelines and the MAP Administrative Guidelines. An overview of the procedures is as follows.
(1) Definition of APA5
APA is defined as the confirmation made by a District Director of a Tax Office or a Regional
Commissioner of an Regional Taxation Bureau (RTB) with regard to the method of calculation ofarm’s length prices and the specific details thereof deemed to be the most reasonable to be adopted
by a corporation.
(2) Relationship between APA and MAP
a. Elimination of double taxation
BAPA is a means to eliminate double taxation before transactions take place by conducting
Competent Authority (CA) negotiations and reaching an agreement between the countries
concerned regarding suitable transfer pricing methods.
b. Endorsement of MAP requests when an APA is filed6
To prevent double taxation and to ensure predictability of taxation, the division in charge at the
RTBs shall recommend the APA applicant to file a MAP request in the case that the corporation has
not filed one.
c. Collaboration between RTB APA review teams and the MAP section7
The APA review teams (divisions in charge at the RTBs) and the MAP section (Office of Mutual
Agreement Procedures at the NTA) collaborate together and exchange ideas from the pre-filingconference stage to the conclusion of the MAP, in order to resolve the APA case as quickly as
possible.
(3) Relationship between APA and Transfer Pricing Examinations
a. Confirmation of future years’ transfer pricing
APA examines the suitability of the methods used to calculate arm’s length prices and the profit
rate based on past financial data. This is in order to grant confirmation for future transactions, In
contrast, transfer pricing examinations deal with past years’ transactions.
b. Use of range

5

Transfer Pricing Administrative Guidelines 1–1. Transfer Pricing Administrative Guidelines on Consolidated
Corporate Groups (Document ID: Examination Division 7-4 etc. dated 28 April 2005) 1–1
6 Transfer Pricing Administrative Guidelines 5–11
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–11
7 Transfer Pricing Administrative Guidelines 5–12
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5-12

5

In transfer pricing examinations, arm’s length prices are calculated as a particular level or point. In
contrast, APA often set a range that indicates that there is no income transfer.
c. Comparable transactions
APA recognize the calculation methods suggested by the taxpayer himself, and so the selection ofcomparable transactions is based only on information the taxpayer is able to gather (public data,internal data, etc.).
d. Relationship between APA requests and examinations8zFiling an APA request does not put into abeyance any examination of the same taxpayer
and transactions.

z

In order to ensure confidence in the system, information obtained from the taxpayer in the
APA review process is not used in the examination, except for factual information, such as
financial statements, capital relationship diagrams, and summary statements of business.

(4) Request and Review Procedures
a. Deadline for filing APA requests9
A Special Application Form (“Request for APA of the Transfer Pricing Methodology”) must be filedwith the necessary documents no later than the deadline10 for filing the taxpayer’s final tax returnfor the first business year to be covered by the APA. When MAP is requested, a MAP Request Formmust also be submitted separately. Although there is no deadline for requesting MAP regarding
APA cases, the MAP Request Form is usually submitted together with the APA request.
b. Documents to be attached with APA request11zOutline of organization engaged in foreign-related transaction for confirmation and/or
details of the transactionz

Transfer pricing method to be confirmed and the specific details thereof, and explanation of
why this method is the most rationalzMaterial business and economic conditions essential to the APAzCash flow and currency types of the transaction to be confirmedzCapital relations and substantial control relationships with foreign-related personszFunctions performed by transaction partiesz

Operational and accounting information for the prior three taxable yearsz

Outline of transfer pricing examinations, appeals, lawsuits, and similar procedures

8

Transfer Pricing Administrative Guidelines 2–21
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 2-21
9 Transfer Pricing Administrative Guidelines 5–1
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–1
10 The deadline for filing a request for APA renewal is the day before the first day of the business year to be coveredby the APA. (Transfer Pricing Administrative Guidelines 5–20. Transfer Pricing Administrative Guidelines on
Consolidated Corporate Groups 5–20.)
11 Transfer Pricing Administrative Guidelines 5–2, 5–3
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–2, 5–3

6

pertaining to applicable foreign-related persons, and details of past taxation in theircountryz

Results determined by applying the requested transfer pricing methods to the prior threetaxable years

c. Terms to be confirmed12
Under the Transfer Pricing Administrative Guidelines, APA in principle are applicable to three tofive taxable years.
(5) Review of APA Requests
The review is carried out based on the following items:a. Information about the business conditions of the APA-requesting taxpayer and theforeign-related company and the particulars of the foreign-related transactionsb.

Analysis of probability of past years’ income transfer, which constitute the basic data for reviewc.

Analysis of the adequacy of the methods used to calculate the arm’s length pricesd.

Analysis of the comparability of the comparable transactionsz

Types of inventories and service rendered, etc.

zStage of transactionzVolume of transactionsz

Terms and conditions for the transactionzFunctions performed and risks to be assumed by the parties concernedzIntangible assetszBusiness strategyzTiming of entry into the marketzMarket conditions(6) Effects of APA13
When the taxpayer files tax returns in accordance with the APA, the confirmed transaction istreated as having been conducted based on arm’s length prices.
(7) Examination of Compliance Conditions14
A taxpayer who has received an APA confirmation (hereafter referred to as “confirmed corporation”)
must submit reports (annual compliance reports) explaining that the filed income is in accordancewith the APA confirmation, by the deadline for the taxpayer’s final tax return for each year covered

12

Transfer Pricing Administrative Guidelines 5–7
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5-7
13 Transfer Pricing Administrative Guidelines5–16
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–16
14 Transfer Pricing Administrative Guidelines 5–14
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–14

7

by the APA or the deadline predetermined by the District Director of the Tax Office. The division in
charge at the RTB in question will examine the content of those reports.
(8) Compensating Adjustments15
In case incomes (actual figures) derived from the confirmed transactions during the APA-covered
year do not comply with the conditions of the confirmed APA, the taxpayer must make necessary
adjustments for the year (Compensating Adjustments).

If the confirmed corporation makes any

adjustments to comply with the APA in its financial statements, the adjustments are treated as
legitimate transactions for the purpose of transfer pricing.
If it is found that the incomes of the confirmed corporation are less than the appropriate figures, thecorporation must take one of the two following procedures:a.

Adjustment of figures on the final returns
The confirmed corporation must correct the taxable income on the final returns if it turns outthat income was understated in the financial statements pertaining to the confirmed taxable
years due to an inconsistency between the actual transaction and the results of applying theconfirmed transfer pricing method after the closing date for the financial statements, andbefore the deadline for final tax returns.

b.

Amended returns
The confirmed corporation must promptly file amended tax returns if it turns out that income
was understated in the tax returns pertaining to the confirmed taxable years due to aninconsistency between the actual transaction and the results of applying the confirmed transfer
pricing method after filing the tax returns.

If it is found that the incomes of the confirmed corporations are more than the appropriate figures,
when BAPA is applied, the confirmed corporation may adjust its income by one of the following two
ways:
a.

Adjustment of figures on the final returns
The confirmed corporation may correct the taxable income on the final returns based on themutual agreement related to compensating adjustments if it turns out that income in thefinancial statements pertaining to the confirmed taxable years was overstated due to adifference between the actual transaction and the results of applying the confirmed transfer
pricing method after the closing date for the financial statements, and before the deadline forfinal tax returns.

b.
15

Request for correction of tax return

Transfer Pricing Administrative Guidelines 5–17
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–17

8

The confirmed corporation may file a request for correction of the tax return based on themutual agreement related to compensating adjustments if it turns out that income wasoverstated due to a difference between the actual transaction and the results of applying theconfirmed transfer pricing method in the tax returns after filing its final tax returns pertaining
to the confirmed taxable years.
(9) Revisions, Cancellations, and Renewals
a. Revisions16
In the event that there arises a situation that causes material differences to business and economic
conditions essential to the continuation of the APA and critical assumptions differ drastically fromthose at the time of the confirmation, the taxpayer must file a request for APA revision.
b. Cancellations17
An APA shall be cancelled under any of the following circumstances:z

The confirmed corporation did not submit the request for revision even when material
differences to critical assumptions necessary to continue APA arose.

z

The confirmed corporation failed to comply with the contents of the APA in its tax
returns.

z

The confirmed corporation failed to submit the annual compliance report.

z

Any of the facts based on the APA request are revealed to be false.

c. Renewals18
Request for APA renewal for business years following the confirmed years shall be processed inaccordance with the procedures for new APA requests.
(10) Rollbacks19
When the taxpayer proposes to roll back the transfer pricing method to years prior to the confirmed
years and the confirmed transfer pricing method in BAPA is regarded as the most suitable even forthe years prior to the confirmed years, the rollback shall be approved.
(11) Procedures for Consolidated Corporations
The NTA established the Commissioner’s Directive on the Operation of Transfer Pricing Related to
The parent corporation shall file the request for

Consolidated Corporate Groups in April 2005.20

16

Transfer Pricing Administrative Guidelines 5–18
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–18
17 Transfer Pricing Administrative Guidelines 5–19
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–19
18 Transfer Pricing Administrative Guidelines 5–20
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–20
19 Transfer Pricing Administrative Guidelines 5–21
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–21
20 See footnote 5.

9

APA concerning its own transactions with foreign related entities in the name of the parent
corporation to the District Director of the Tax Office with jurisdiction over the place of tax payment.
The parent corporation, instead of a subsidiary, shall also file requests for APA on the foreign
related transactions of consolidated subsidiaries to the District Director of the Tax Office withjurisdiction over the place of tax payment21.
The Commissioner’s Directive on Mutual Agreement Procedures (Administrative Guidelines) was
revised to make the consolidated parent corporation the entity to request a MAP on behalf of its
subsidiaries.2221
22Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–1
Document ID: Office of Mutual Agreement Procedures 1-18 etc. dated 8 June 2005 (amended)10

6. APA Process
In Japan, APA commence at the request of the taxpayer.
proceedings.

The NTA does not charge any fee for APA

BAPA procedures, as a rule, can be divided into the following four steps: (1)submission of APA request, (2) case review by the Regional Taxation Bureau (RTB) APA review
group, (3) MAP negotiations and agreement, and (4) review of annual compliance reports, etc.
(1) Submission of APA Request
The taxpayer may have a pre-filing conference with the tax authority before deciding whether toapply for an APA.23

Where MAP proceedings are likely to be requested at a later date, the relevant

divisions of the Regional Taxation Bureau (RTB) and the NTA Head Office in charge of the APA
program may attend the meeting, and the NTA’s Office of Mutual Agreement Procedures may
participate in the consultations. Further, there may be cases where the taxpayer applies for an APA
after a transfer pricing examination in order to avoid future risk of taxation and to ensure tax
predictability for his or her business. In such cases, if a MAP is underway regarding a former
transfer pricing taxation case, the taxpayer can submit a request for APA to the CA analysts andthen arrange for a pre-filing conference.
The NTA encourages taxpayers who submit an APA request to file a request for MAP in the casewhere the taxpayer has not filed one24.
APA requests are submitted to the Tax Office or RTB depending on the size of the applicant
corporation. To the request form, the taxpayer is required to attach necessary documents which
sufficiently illustrate the transactions (see 5(4)b). The APA review group of the RTB facilitates thereview of APA requests.
(2) Case Review by the Regional Taxation Bureau (RTB) APA Review Group
When the APA request is submitted, the relevant division of the RTB designates a person to be
responsible for the request and commence the review immediately. The APA review staff requests
documents necessary for the review in addition to the documents attached to the APA request. The
APA review group of the RTB then reports the results of its review to the division in charge at the
NTA Head Office. That NTA division reviews the report internally and sends it to the NTA’s Officeof Mutual Agreement Procedures.
The RTB APA review group conducts its review in accordance with the Transfer Pricing
Administrative Guidelines 5-10 (Evaluation of APA Requests).

23

Transfer Pricing Administrative Guidelines 5–6
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–6
24 Transfer Pricing Administrative Guidelines 5–11
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–11

11

(3) MAP Negotiations and Agreement25
In the case of BAPA, the CA analysts draft a position paper based on the conclusion reached by the
APA review staff of the RTB in question. Face-to-face negotiations between the CA staff of thecountries involved are generally held several times a year. In addition, communication between CAs
by telephone, fax, and other means is encouraged, and opinions are exchanged on specific cases
where necessary. The CA staff and APA review staff keep in regular contact and exchange views on
the material facts.
When the APA agreement reached in the same as the content of the APA request, the APA review
group within the RTB, then sends a notice of APA confirmation to the taxpayer. When the APA
agreement reached differs from the content of the APA application, the taxpayer is required tosubmit a modified APA request. The RTB APA review group then sends a notice of APA confirmation
to the taxpayer.26(4) Review of Annual Compliance Reports, etc.27
After the APA confirmation notice is received, the taxpayer is required to submit, by the deadline
for its final tax return or by a newly designated date, an annual compliance report which explains
whether the business results reported in the year’s tax return meet with the agreement. The
division of the RTB in change may request an explanation from the taxpayer if necessary. Further,it may visit the taxpayer’s premises for a review. In the case that income figures are under-reported
compared with the figures agreed, they must be adjusted upward in the modified APA request.
Conversely, when income figures are over-reported, MAP negotiations must be held. The taxpayer
must submit a MAP request and conduct a compensating adjustment (request for correction of tax
return) based on the new MAP agreement.
Further, when the conditions provided in critical assumptions are changed, the taxpayer must
submit a request for new MAP consultations.

25

Transfer Pricing Administrative Guidelines 5–13
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–13
26 In the case of a unilateral APA, a modified APA request may be requested when the RTB APA review groupjudges the original APA request to be unreasonable. If the taxpayer does not accept the request for modificationfrom the APA review group, the APA review group sends a notice of non-confirmation. When the content of the APA
request is approved, or when the taxpayer accepts the required modification, the RTB APA review group sends a
notice of confirmation to the taxpayer.
27 Transfer Pricing Administrative Guidelines 5–14, 5–15
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–14, 5–15

12

13

7. Staff in Charge of BAPA Cases(1) MAP Staff
A section in charge of MAP was created in June 1982 and initially placed under the Councilor of the
Minister’s Secretariat (Deputy Commissioner [International Affairs]) and the Director (Head of the
Office for the Deputy Commissioner [International Affairs]). The Deputy Commissioner and the
Director handle international conferences. The Office of International Operations was establishedin 1986.

Subsequently, the positions of the Director overseeing MAP (1995) were created. The

Office of Mutual Agreement Procedures was established in July 1999.
The staff of the Office of Mutual Agreement Procedures is responsible for all MAP cases so theyhandle the Mutual Agreement Procedures related to double taxation cases including not only BAPA
cases, but also transfer pricing taxation cases, withholding cases, and permanent establishment
cases. However, APA cases have comprised more than half of all cases handled by the Office of
Mutual Agreement Procedures in recent years. The table below describes the Office of Mutual
Agreement Procedures.
Group
DeputyDirector, Office of MutualCommissioner

Agreement Procedures(International
Affairs)

Jurisdiction

1
2

Mainly North America

5

and Oceania

6(Mutual3

Mainly Western Europe

Agreement Procedures)

4and Asia

Director(2) APA Review Groups
The Examination Division of the Examination and Criminal Investigation Department in the NTA
established the Director (International Examination), Research and Information Section No. 1-3(Currently renamed “International Information Section No. 1-3”) in 1987. They supervise and guidethe RTBs in transfer pricing taxation and implementation of the APA program.
National Tax Agency
Assistant Commissioner(Examination andCriminal Investigation)

Director,
Examination Division

Director(International Examination)

International
Information Section
No. 1-3

The divisions in charge of APA within the Examination Division in the RTBs are as follows. In 2005,
14

Second Transfer Pricing Division was established to handle reviews of APA requests.
Regional Taxation Bureau (Office)Tokyo RTB
Osaka RTB
Nagoya RTB
Kanto-Shinetsu RTB

Other RTBs

First Examination
Department
First Examination
Department
Examination
Department
Examination andCriminal Investigation
Department
Examination andCriminal Investigation
Department

Deputy Assistant Regional
Commissioner (International)

Second Transfer
Pricing Division
Transfer Pricing
DivisionInternational
Examination DivisionInternational
Examination Division
Management Division(Examination)

Okinawa Regional Taxation Office

Examination Division

8. Taxpayer Cooperation in APA
The APA system is based on taxpayer initiative. The cooperation of the taxpayer is therefore
indispensable for APA to proceed smoothly. In particular, timely submission of the relevant
documents and other information contribute greatly to efficient case reviews and CA discussions.
Prompt submission is thus essential.
Further, when an APA request is submitted to a foreign tax administration, an application should
be submitted simultaneously to the NTA in order to enable more effective case review and CA
discussions.
Moreover, the CA analysts quite often request additional information for the purpose of, for example,
verifying facts. On such occasions, the taxpayer’s prompt response is highly appreciated.
If it is found that the main purpose of the APA request is to decrease the tax burden in an
inappropriate way, the APA/MAP procedures may stop or end in non-confirmation.

15

9. Recent Development(1) Recent Development of Mutual Agreement Procedures (MAP)
The number of map cases received tends to increase, and 90% and more of these cases relate totransfer pricing taxation.

Among those, the number of bilateral advance pricing arrangementcases accompanied by the Mutual Agreement Procedures (BAPA) has been increasing.
During the 2005 business year (which started July 2005 and finished at the end of June 2006), thenumber of cases received is 129.
number of BAPA cases is 92.

Among those, the number of transfer pricing cases is 119 and theComparing the 1995 business year with that of ten years ago, thenumber of map cases received increased approximately four times and the number of BAPA cases
increased approximately six times.
Chart 1 below indicates trend in the number of MAP received, and the number of BAPA received forthe past ten (10) years.
Chart 1 Trend in the number of MAP received and BAPA received
Number
140

129

MAP
received

92

BAPA
received

120
100
80
60
40
20

32

15

0
1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005 Business Year

(Note)
1

Business year is from July 2005 through the end of June 2006.

2 The number of MAP cases received is the cases either which we received request formutual agreement procedures from the taxpayers, or which we received request formutual agreement procedures from foreign taxpayer authorities.
3

MAP cases with regard to compensating adjustment and revision of the agreement arecounted as the number of MAP received as of the re-negotiation year.

(2) Recent Development of BAPA
The number of disposed BAPAs is 65 and Charts 2 through 5 below indicate the detail.
a. The Number of Disposed BAPAs – by Industry

16

The number of BAPA cases disposed is categorized by industry of taxpayers in Chart 2 below. Whilein business year 2001, the number of manufacturing companies is 20 and the number of wholesale
and retail is 4, in business year 2005 the number of manufacturing companies is 31 and the numberof wholesale and retail is 27.
Number35

The number of wholesale and retail substantially increased.

2005 Business Year

31

30
25
20

2001 Business Year

Chart 2 The Number of Disposed BAPA -by Industry

27
20

15
10

7
4

5

1

0
Manufacturing

Wholesale/Retail

Othersb. The Number of Disposed BAPAs– by Transaction TypeThe number of disposed BAPAs is categorized by transaction type in Chart 328 below. While inbusiness year 2001, the number of Inventory Transactions is 24 and the number of Provision ofServices is 9, in business year 2005 the number of Inventory Transactions is 55 and the number ofProvision of Services is 30.

The ratio of the number of Provision of Services relatively increased.

Chart 3 The number of Disposed BAPA-by Transaction Type2001 Business Year2005 Business Year

Number
60

55

50
40
30

30

24

20

20
11

9

10
0
Inventory Transactions

Provision of Services

Othersc. The Number of Disposed BAPAs– by Transfer Pricing Methods
The number of disposed BAPAs is categorized by transfer pricing methods in Chart 429 below.
In business year 2005, the number of CP method and profit split method substantially increased.
The number of TNMM, which was introduced in March 2004, is increasing.

In light of the recent

trend of increase of intangible transactions in BAPAs, profit split method will be further expected toincrease.

28 Some cases include more than one transaction. “Others” refers to royalty and global trading-relatedtransactions.
29 In some cases, several transfer pricing methods are applied.

17

Chart 4 The number of Disposed BAPA-by Transfer Pricing Method
Number25

2001 Business Year2005 Business Year

22
20

20
16
15

12

10

9

8
5

4

5
0
CUP

RP

CP

PS

TNMM

d. The Number of Disposed BAPAs – by Region
The number of disposed BAPAs is categorized by transfer pricing methods in the chart 5 below.
Although the number of BAPA cases with USA, Australia, and Canada has made up a large share of
BAPAs, the number of BAPA cases with Asian countries with little experience in BAPA is increasing.
In light of the change of BAPA response in such countries, the number of BAPAs with such countries
will be expected to increase.
While the number of countries with which we negotiated BAPA was eleven countries in businessyear 1995 or ten years ago, it increased to become twenty-three countries in business year 2005.
The number of countries with which we have negotiated at the end of business year 2005 is shownin the attachment “Partner Countries of Mutual Agreement Procedure.
Number
35

Business Year 2001

Chart 5 The Number of Disposed BAPA-by Region

Business Year 2005

29

30

27

25
20

18

15
9

10

5

5

2

0
AmericasAsia/Oceania

Other

e. Time Required per BAPA Case
The average time spent on a BAPA case is around two years, though it varies according to whether,for example, a case is a new case, whether it merely involves the renewal of a former APA, orwhether it is a compensating adjustment case.

(3) Recent Discussions
Resolution of dispute with regard to international taxation including mutual agreement procedures
are currently discussed at the OECD.

At the OECD, implementation of mutual agreement18

procedure, policy issues, and complementary resolution of dispute are discussed with reference to“MAP Operational Guidance for Member Countries of the Pacific Association of Tax
Administrators” and “BAPA Operational Guidance for Member Countries of the Pacific Associationof Tax Administrators,” publicized by PATA in June 2004.

In early 2006, in light of OECD

discussions and comments from the business community through public comment procedures,
public discussion draft which compiled draft revision of OECD model convention and its
commentary, and draft of effective mutual agreement procedure manual were publicized.
In March 2006, public consultation of the draft above was held in Tokyo and we heard opinions fromthe business community.

Hereinafter, the discussion will be finalized considering these opinions.

19Partner Countries of Mutual Agreement Procedure
Europe（15 countries）
Austria(61)
Denmark(68)APA
Switzerland (71)APA
Ireland
(74)
Spain
(74)
United Kingdom(06)APA
Italy
(80)
Germany(83)APA

Belgium
FinlandNetherlands
NorwayLuxembourg
FranceSweden(88)APA(91)(92)APA(92)(92)(95)APA(99)APA

East Europe（17 countries）
Romania(76)
Poland(80)
Slovakia２(77)
Armenia１ (86)Czech２(77)
Ukraine１ (86)
Hungary(80)
Uzbekistan１(86)１Azerbaijan (05)

Kyrgyz１(86)
Georgia１(86)
Tajikistan１ (86)
Turkmenistan１ (86)（Attachment 1）

Belarus１
Moldova１
Russia１
Bulgaria

(86)
(86)
(86)
(91)

North America(2 countries)
Canada(99)APAUSA(03)APACentralandSouth
America (2 countries)
Brazil (76)
Mexico (96)Middle East
(3 countries)
Egypt
(69)
Israel(93)
Turkey(93)

Africa（2 countries）
Zambia(70)
South Africa (97)

East・South East Asia（8 countries）
Philippines (80)Singapore
Indonesia(82)
Viet Nam
China３(83)APA
Korea
Thailand(90)APA
Malaysia

South・Central Asia
(4 countries）
Pakistan(60)
Sri Lanka
(67)
India
(06)
Bangladesh(91)

NOTICE-１．Convention with former Soviet Union is inherited.
２．Convention with former Czech Slovakia is inherited.
３．Convention is not applicable to Hong Kong and Macau.
４ .Former Japan-U.K. bilateral tax convention isinherited by Fiji.

(94)APA(95)(98)APA(99)

Oceania (3 countries)
Fiji４
(62)
New Zealand (67)APA
Australia (69)APA【Explanatory note】
１． Countries with shaded text
indicate the partner countries
that
we
have
mutualagreement procedure cases asof the end of business year
2005. (23 Countries)“APA” indicates countries withwhich we have BAPA cases
accompanied by the mutual
agreement procedure as of theend of business year 2005. (16Countries)
２． The numbers with parentheses
indicate
final
revision
autograph as last two digits of
the year.

(Attachment 2)

Summary of MAP Statistics

BAPA

Transfer
Pricing
Taxation

Others

Total

Cases Received

80

30

12

122

Cases Disposed

39

19

25

83

Cases Carried Over

129

48

26

203

Cases Received

63

8

19

90

Cases Disposed

49

27

16

92

Cases Carried Over

143

29

29

201

Cases Received

92

27

10

129

Cases Disposed

65

16

12

93

Cases Carried Over

170

40

27

237

Business Year

2003

2004

2005

(Note)
1

Business year is from July through the end of June.

2 The number of MAP cases received is the cases either which we received
request for mutual agreement procedures from the taxpayers, or which we
received request for mutual agreement procedures from foreign taxpayer
authorities.
3

MAP cases with regard to compensating adjustment and revision of theagreement are counted as the number of MAP received as of there-negotiation year.

Japan’s Tax Convention Network
Europe（15 countries）
Austria(61)
Denmark(68)
Switzerland(71)
Ireland
(74)
Spain
(74)
United Kingdom(06)CA
Italy
(80)
Germany(83)

Belgium
FinlandNetherlands
NorwayLuxembourg
FranceSweden

(88)
(91)
(92)
(92)CA(92)CA(95)CA(99)CA

East Europe（17 countries）
Romania(76)
Poland(80)
Slovakia２ (77)Armenia１ (86)Czech２(77)
Ukraine１ (86)
Hungary(80)
Uzbekistan１(86)１Azerbaijan (05)（Reference）

Kyrgyz１(86)
Georgia１(86)
Tajikistan１ (86)
Turkmenistan１ (86)

Belarus１
Moldova１
Russia１
Bulgaria

(86)
(86)
(86)
(91)CA

North America(2 countries)
Canada(99)CA
USA(03)CA
CentralandSouth
America (2 countries)
Brazil (76)
Mexico (96)CA

Middle East
(3 countries)
Egypt
(69)
Israel(93)CA
Turkey(93)CA

Africa（2 countries）
Zambia(70)
South Africa (97)CAEast・South East Asia（8 countries）
Philippines (80)Singapore
Indonesia(82)
Viet Nam
China３(83)
Korea
Thailand(90)CA
Malaysia

South・Central Asia
(4 countries）
Pakistan(60)
Sri Lanka
(67)
India
(06)CA
Bangladesh(91)CANOTICE‑１．Convention with former Soviet Union is inherited.
２．Convention with former Czech Slovakia is inherited.
３．Convention is not applicable to Hong Kong and Macau.
４ .Former Japan‑U.K. bilateral tax agreement isinherited by Fiji.

(94)CA(95)CA(98)CA(99)CA

Oceania (3 countries)
Fiji４
(62)
New Zealand (67)Australia (69)【Explanatory note】
１． Countries with bold indicate
OECD member countries. (26Countries)
２． “CA” indicates countries withwhich we have correlative
adjustment provision in the tax
treaty. (19 Countries)
３． The numbers with parentheses
indicate
final
revision
autograph as last two digits of
the year.