Provisional Translation

APA Program Report 2009

１．Recent Trends in Mutual Agreement Procedures (MAP)
The number of MAP cases has increased in recent years, with more than 90% of these cases being
related to transfer pricing. In particular, the number of Bilateral Advance Pricing Arrangements(BAPA; an APA accompanied by MAP) accounts for the majority of the increase in the number of
MAP cases.
During the 2008 business year (July 2008 until June 2009), the National Tax Agency (NTA)
received 174 MAP cases, of which 130 were BAPA. Compared to the statistics a decade ago (1998
business year), the number of MAP cases has increased by a factor of approximately four, while thenumber of BAPA cases has increased by a factor of approximately ten.
Chart 1 below indicates the trends in the number of MAP cases and BAPA cases over the past
decade.

Chart 1 Trends in the number of MAP and BAPA cases

Number
200

174

180
160
140

MAP

120

130

100
80
60

BAPA

44

40
20
0

13
1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Business Year

(Notes)1 The business year runs from the beginning of July until the end of June in the following year.
2 The number of MAP cases consists of both cases in which the NTA received MAP requests from
taxpayers in Japan, and cases in which the NTA received MAP requests from foreign tax
authorities.
3 MAP cases on compensating adjustments and amendments to a previously agreed APA are
counted in renegotiation years.

1Provisional Translation
２．Summary of the BAPA program updatea. Number of BAPA cases disposed of in the 2008 business year
The number of BAPA cases disposed of in the 2008 business year was 91. (Details are shown inCharts 2 through 5 below.)b. Number of BAPA cases disposed of by industry
The number of BAPA cases disposed of, as categorized by the taxpayer’s industry, is shown in Chart
2 below.
In the 2008 business year, the number of cases for manufacturing companies was 64, while that forwholesale/retail companies was 23.
Further details for each industry are shown in Chart 2-2 below.

Number2001 Business Year

Chart 2-1 Number of BAPAs Disposed of by Industry

702008 Business Year

64

60
50

40
30

23
20

20

10

4

0
Manufacturing

Wholesale/Retail

OthersChart 2-2 Number of BAPAs Disposed of by Industry

Number30
20

2008 Business Year

17

14

15
10
0

2001 Business Year

25

25

5

4

1

2

5

Manufacturingindustry(Note 1)

12
6

8

7
3

2
Manufacturingindustry(Note 2)

Manufacturingindustry(Note 3)

Manufacturingindustry(Note 4)

Miscellaneous
manufacturingindustry3
Tradeindustry(Notes)1 Manufacture of household electrical appliances and electric bulbs
2 Manufacture of transportation equipment
3 Manufacture of industrial electrical apparatus
4 Manufacture of machinery2

6
1
Miscellaneous
wholesale tradeand retail trade1

4

OthersProvisional Translationc. Number of BAPA cases disposed of by transaction type
The number of BAPA cases disposed of, as categorized by transaction type is shown in Chart 3
below.
In the 2008 business year, the number of Tangible Property Transactions was 82, the number ofProvision of Services cases was 31, and the number of Intangible Property Transactions was 36.
2001 Business Year

Chart 3 Number of BAPAs Disposed of by Transaction Type
Number90

2008 Business Year

82

80

70
60
50
40
30

36

31
24

20

11

9

10
0

Tangible Transactions

Provision of Services Intangible Transactions(Note)
Cases including different types of transactions are counted more than once according to thetransactions involved, and the number of transactions is different from the number of BAPA
cases.

d. Number of BAPA cases disposed of by transfer pricing method
The number of BAPA cases disposed of, as categorized by the transfer pricing method, is shown inChart 4 below.
In the 2008 business year, the number of TNMM (Transactional Net Margin Method, introduced in2004) cases was remarkably high.
2001 Business Year

Chart 4 Number of BAPAs Disposed of by Transfer Pricing Method

Number2008 Business Year

70

61

60
50
40

30
16

20

17
8

10

5

5

5

4

0

CUP

RP

CP

PS

TNMM

(Note)
In some cases, more than one transfer pricing method is applied in accordance with the transactions
involved, and the number of transfer pricing methods is different from the number of BAPA.

3

Provisional Translatione. Number of BAPA cases disposed of by region
The number of BAPA cases disposed of, as categorized by region is shown in Chart 5 below.
Although the number of BAPA cases with the U.S.A. and Australia has traditionally accounted for alarge share of the total, the number of BAPA cases with Asian countries is increasing. The numberof BAPA cases involving these countries is expected to increase further in the future.
In the 1998 business year (ten years ago), the number of countries with which the NTA wasinvolved in BAPA negotiations was 4; this number has increased to 18 in the 2008 business year.
(Note)The number of countries with which the NTA was negotiating one or more BAPA cases at the end of the2008 business year is shown in Attachment 1 “Partner Countries for the Mutual Agreement Procedure”.

NumberChart 5 Number of BAPAs Disposed of by Region

2001 Business Year2008 Business Year

50
41

40

36

30
20

18
14

10

5

2
0
AmericasAsia/Oceania

Others(Note)The treaty partners from which the NTA received the largest numbers of BAPA cases in the 2008 businessyear were : ①U.S.A. ②Australia ③Korea.

f. Average time spent on a BAPA case
Although it varies substantially according to the nature of each case( e.g., whether the case is new
or a renewal, etc.), the average time spent on a BAPA case in the 2008 business year was 23.7
months .

4

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

Belgium(88)APAFinland(91)
Netherlands (92)APA
Norway(92)
Luxembourg(92)
France(07)APA
Sweden(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
(68)
Israel(93)
Turkey(93)

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

East・South East Asia（8 countries）
Philippines (06)Singapore (94)APA
Indonesia(82)
Viet Nam(95)
China３(83)APA
Korea(98)APA
Thailand(90)APA
Malaysia(99)
South・Central Asia
(4 countries）
Pakistan(08)
Sri Lanka
(67)
India
(06)
Bangladesh(91)

NOTICE-１. The former Japan-Soviet Union convention is inherited.
２. The former Japan-Czechoslovakia convention is inherited.
３. This convention is not applicable to Hong Kong or Macau.
４. The former Japan-U.K. convention is inherited.

Oceania (3 countries)
Fiji４
(62)
New Zealand (67)APA
Australia(08)APA【Explanatory note】
１． Shaded text indicates countries
with which we had mutual
agreement procedure cases, as ofthe end of the business year
2008 (22 countries).
“APA” indicates countries withwhich we had BAPA cases
accompanied by the mutual
agreement procedure, as of theend of business year 2008(18countries).
２． The numbers in parentheses
indicate the final year in which
each executed convention wasrevised (signed).

(Attachment 2)

Summary of MAP Statistics

BAPA

Transfer
Pricing
Taxation

Others

Total

Cases Received

105

35

14

154

Cases Disposed of

84

16

15

115

Cases Carried Over

191

59

26

276

Cases Received

113

31

9

153

Cases Disposed of

82

33

10

125

Cases Carried Over

222

57

25

304

Cases Received

130

30

14

174

Cases Disposed of

91

23

13

127

Cases Carried Over

261

64

26

351

Business Year

2006

2007

2008

(Notes)1 The business year runs from the beginning of July until the end of June in thefollowing year.
2 The number of MAP cases consists of both cases in which the NTA received
MAP requests from taxpayers in Japan, and cases in which the NTA received
MAP requests from foreign tax authorities.
3 MAP cases on compensating adjustments and amendments to a previously
agreed APA are counted in renegotiation years.

Provisional Translation

Outline of APA（Reference）

Provisional Translation

Contents

1

Introduction

1

2

What is an Advance Pricing Arrangement (APA)?

2

3The History of APAs in Japan and around the World

3

4 International Efforts for making the MAP Guidance, etc.

4

5

5

Overview of APA in Japan（1） Definition of APA（2） Relationship between APA and MAP（3） Relationship between APA and Transfer Pricing Examination（4） Request and Review Procedures（5） Review of APA Request（6） Effects of APA（7） Examination of Compliance Conditions（8） Compensating Adjustments（9） Revision, Cancellation, and Renewal of APA（10） Rollback（11） Procedures for Consolidated Corporations（12） Pre-filing Consultation

6

Flow of APA Process

11（1） Submission of APA Request（2） Review of Request by RTB’s APA Review Team（3） MAP Negotiations and Agreement（4） Review of Annual Compliance Report, etc.
【Chart】Flowchart of BAPA Procedures
7

Staff in Charge of BAPA Cases

14（1） Staff in the MAP Office（2） APA Review Groups
8 Taxpayer’s Cooperation in APA
Reference

Japan’s Tax Convention Network

16

Provisional Translation

1. Introduction
Transfer pricing taxation was introduced in Japan in 1986. In 1987, Advance Pricing Arrangements(APAs) were initiated, making Japan the first country in the world to implement such a procedure.
The basic mechanism of transfer pricing taxation is to compute the taxable income of a corporation
as if its transactions with its foreign-related entity/entities have been conducted at arm’s length
prices; this is in case the taxable income of the corporation has been reduced as a result of the factthat its transactions with its foreign related entity/entities have not been based on the arm’s lengthprinciple.
An APA is a framework whereby, based on the application from a taxpayer, the tax administration
confirms in advance the method of calculating the arm’s length prices for transactions with its
foreign-related entity/entities. Further, the tax administration will refrain from applying transfer
pricing taxation to the taxpayer if the taxpayer files its tax returns in accordance with theconfirmed APA conditions for the years covered by the APA.
There are two types of APA, a unilateral APA and a BAPA (or a multilateral APA). In a unilateral
APA, the National Tax Agency (NTA) confirms the method of calculating the arm’s length price. In a
BAPA (or multilateral APA), the NTA confirms the method of calculating the arm’s length pricebased on an agreement on the method reached with one or more foreign tax authorities under theauthority of the mutual agreement procedures (MAP).
The NTA is promoting BAPAs to facilitate the enforcement of transfer pricing regulations, mitigate
the administrative burden on corporations, and ensure tax predictability for corporate management.
The number of BAPA cases has been increasing in recent years as the Japanese economy has
become progressively globalized. In addition, APAs have become more widely recognized amongtaxpayers.
APA cases make up the majority of MAP cases today; this indicates that there is an increasing needto avoid the risk of double taxation in advance by using an APA.
The number of cases on the renewal of APAs has been rising recently. Moreover, cases involving
countries without any experience of BAPAs have appeared, and the geographical area covered by
APAs is expanding.
Under these circumstances, we hope that this outline will help improve taxpayers’ understanding of
APAs.

1

Provisional Translation

2. What is an Advance Pricing Arrangement (APA)?
As noted above, an APA is a framework whereby the tax administration confirms in advance themethod of calculating the arm’s length prices for transactions with its foreign-related entity/entities.
Also, the tax administration will refrain from applying transfer pricing taxation to the taxpayer if
the taxpayer files its tax returns in accordance with the confirmed APA conditions for the years
covered by the APA.
The objectives of an APA are to ensure taxpayer’s predictability for transfer pricing taxation and topromote the proper and smooth enforcement of taxation. Transfer pricing adjustments can often belarge, and examinations on transfer pricing often require that taxpayers spend a long period of time
addressing them. It may also take a period of time in the MAP process to resolve double taxation
issues resulting from transfer pricing adjustments. Taxpayer’s risks related to transfer pricing
taxation tend to be high; there is likely to be a significant need for APAs, as they help taxpayersthat conduct foreign-related transactions to avoid the burden involved in transfer pricing taxation.
There are two types of APA, a unilateral APA and a BAPA (or a multilateral APA). In a unilateral
APA, the NTA confirms the method of calculating the arm’s length price. While a unilateral APA
does not ensure that the foreign-related entity/entities in other countries will avoid the risk oftransfer pricing adjustments being made by foreign tax administrations, it may take a shorter
period of time to complete than a BAPA.
By contrast, a BAPA consists of the NTA’s confirmation of the method of calculating the arm’s length
price and an agreement about the method reached with one or more foreign tax authorities under
the authority of the MAP. The objectives of a BAPA are to ensure taxpayer’s predictability fortransfer pricing taxation and avoid the risk of double taxation. With a BAPA, the taxpayer isassured of the legal stability of both tax administrations (or all tax administrations in multilateralcases). This is why many countries, including Japan, use BAPAs.

Diagram of the BAPA Process

Foreign Tax

Mutual Agreement Procedures

NTA

Administration（Regional Taxation Bureaus）

APA review

APA review
APA request and MAP
requestJapanese Taxpayer

APA request and MAP

Related entities

requestForeign Taxpayer

Foreign-related transactions2

Provisional Translation

3. The History of APAs in Japan and around the WorldIn the 1980s, the globalization of business activities saw an increasing need to cope with income
shifting through foreign-related transactions. Some foreign countries had already prepared tohandle such income shifting. Therefore, Japan introduced transfer pricing taxation in March 1986
to realize appropriate international taxation in a common framework with foreign countries.
The APA was introduced in Japan in 1987 to ensure the proper and smooth enforcement of transfer
pricing regulations and the predictability of taxation by giving administrative confirmation on themost rational method of calculating the arm’s length price.
The United States Internal Revenue Service (IRS) also introduced APAs (known as “Advance
Pricing Agreements” in the U.S.) in 1991 through Procedure 91-22. Subsequently, Canada (1994),
New Zealand (1994), Australia (1995) and Mexico (1995) also introduced APAs. After the 1995
OECD Guidelines on transfer pricing further promoted APAs, South Korea (1996), China (1998),
the U.K. (1999), France (1999), the Netherlands (1999) and Germany (2000) introduced APAs. As
such, many countries have now introduced APAs1.
Along with this increase in the global recognition of APAs, the number of BAPA requests made inJapan has also increased since 1994. Due to this increase, the Commissioner’s Directive on Methodsof Calculation of Arm’s Length Prices (Administrative Guidelines), encouraging BAPAs, wasreleased in 1999. The contents of these Guidelines have been retained in the succeeding

Commissioner’s Directive on the Operation of Transfer Pricing (Administrative Guidelines) 2(hereinafter referred to as the “Transfer Pricing Administrative Guidelines”) issued on June 1,
2001.
Comprehensive guidelines for MAP, on which BAPA cases are based, were released as theCommissioner’s Directive on Mutual Agreement Procedures (Administrative Guidelines)(hereinafter referred to as the “MAP Administrative Guidelines”）on June 25, 20013. The MAP
Administrative Guidelines (provisional English translation) are available on the NTA website(www.nta.go.jp).
Countries such as the United States, Canada and Australia also publicize their APA program
reports every year on their websites.

1

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

3

Provisional Translation

4. International Efforts for Making the MAP Guidance, etc.
In The Pacific Association of Tax Administrators (PATA4), the meetings under the Exchange ofInformation articles of the applicable Convention to exchange opinions about and experiences offiscal matters of common interest, the tax agencies of Japan, Australia, Canada and the UnitedStates released the MAP Guidance and the BAPA Guidance in June 2004. There were to deal withthe dramatically increasing use of MAP and BAPAs, and subsequently to respond to the growing
demand from taxpayers for international guidance.
Both sets of Guidance establish targets for the execution of MAP and BAPAs among PATA members,
but are not binding on the members.
One of the points made in each set of Guidance is to establish a timeframe that the members should
endeavor to complete MAP and BAPA cases within two years. This two-year timeframe does not
apply to certain cases, such as cases in which a taxpayer does not cooperate. Although MAP is agovernment-level negotiation, taxpayers that file APA requests are permitted to participate in somesessions to provide factual information.
The MAP Guidance also applies not only to transfer pricing adjustments, but to all mutual
agreement procedures.
The BAPA Guidance declares that the member countries cooperate to deal with BAPAs with thecommon understanding that BAPAs are more desirable than unilateral APAs.
Both sets of Guidance are available on the NTA website (www.nta.go.jp).
OECD released the Manual on Effective Mutual Agreement Procedures (MEMAP) in February
2007, as part of a broader project to improve the functioning of existing international tax dispute
procedures. This is a guide to increase awareness of the MAP process and function, and will provide
basic information on the operation of MAP and identify best practices for MAP. This manual isavailable on the OECD website (www.oecd.org/ctp).
(Notes) MEMAP is not imposing a set of binding rules upon OECD member countries.

4 In January 2006, at the commissioners’ meeting held at Leeds Castle near London and involving Japan, theUnited States, Canada, Australia, the United Kingdom, France, China and India, it was agreed to set up acommissioners’ meeting (named the “Leeds Castle Group”) including the above eight countries, Germany and South
Korea. The result of this meeting was the dissolution of PATA.

4

Provisional Translation

5. Overview of APA in Japan(1) Definition of APA5An APA is defined as a confirmation made by a District Director of a Tax Office or a Regional
Commissioner of a Regional Taxation Bureau (RTB), with regard to the method deemed most
reasonable to be adopted by a corporation of calculating the arm’s length price and the specificdetails thereof.
(2) Relationship between APA and MAP
a. Elimination of double taxation
BAPAs avoid the risk of double taxation in advance, through a BAPA agreement reached between
Japan and one or more foreign tax authorities under the authority of the MAP in our income tax
treaties.
b. Recommendation of MAP request when an APA request is filed6
To prevent double taxation and ensure predictability, the RTB’s division in charge shall provide a
taxpayer who intends to file an APA request with the necessary information enabling the taxpayer
to decide what kind of request to make. The division in charge shall also recommend that the APA
applicant files a MAP request, if it is confirmed that the applicant intends to execute a BAPA.
c. Collaboration between RTB’s APA review teams and MAP section7
The APA review teams (divisions in charge at RTBs) and the MAP section (Office of Mutual
Agreement Procedures of the NTA) shall collaborate and exchange ideas from the pre-filingconsultation stage until the conclusion of the MAP, in order to resolve APA cases as quickly as
possible.
(3) Relationship between APA and Transfer Pricing Examinationa. Confirmation of method of calculating the arm’s length price in future years
An APA is made to confirm the appropriateness of the method of calculating the arm’s length priceand of the profit level for future transactions based on past financial data, whereas a transfer
pricing examination deals with transactions over the past years.
b. Use of range
In transfer pricing examinations, an arm’s length price is calculated at a particular point. In
contrast, an APA often sets a range which satisfies the arm’s length principle that does not bringabout any income shifting.

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 5–12
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–12
7 Transfer Pricing Administrative Guidelines 5–13
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5-13

5

Provisional Translationc. Comparable transactions
An APA is made to confirm the appropriateness of the method of calculating the arm’s length price,and comparable transactions are selected on the basis of information available to the taxpayer (e.g.
public data, taxpayer’s internal data, etc.).
d. Relationship between an APA request and tax examinations8It should be noted that examinations are not interrupted as a result of an APA request.

In order to ensure confidence in the APA system, documents (other than factual documents
such as financial statements, capital relationship diagrams, and summary statements ofbusiness) received from a corporation for an APA review may not be used for theexamination.

(4) Request and Review Proceduresa. Due date of filing an APA request9
An applicant shall file a “Request for an APA of the Transfer Pricing Methodology” along with thenecessary documents no later than the day before the first day of the business year to be covered by
the APA10. When the applicant requests a MAP, the applicant must also submit an “Application for
Mutual Consultation” separately. Although there is no deadline for requesting a MAP in relation to
APA cases, the MAP request is usually submitted together with the APA request.
b. Documents to be attached to an APA request11
Documents describing the outline of the foreign-related transactions and the organizations
conducting the transactions to be confirmed.

Documents describing the transfer pricing method (hereinafter referred to as the “TPM”) tobe confirmed and specific details thereof, and an explanation as to why it is the most
reasonable method.



Documents describing material business and economic conditions essential to the APADocuments providing a detailed explanation of the transactions to be confirmed, including
cash flow, currencies involved, etc.

Documents regarding direct or indirect capital relationships or relationships of substantial
control between the foreign-related entity/entities pertaining to the transactions to be
confirmed and the APA applicant.



Documents regarding the functions performed by the APA applicant and the applicableforeign-related entity/entities in the transactions to be confirmed.

Operational and accounting information for the prior three taxable years.

8

Transfer Pricing Administrative Guidelines 2–22
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 2-22
9 Transfer Pricing Administrative Guidelines 5–2
ransfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–2
10 There is a temporary measure for the timing of application of the revised directive on the deadline for filing arequest for an APA renewal. (Document ID: Examination Division 7-24, International Operations Division 1-44,
Office of Mutual Agreement Procedures 1-98, Corporation Taxation Division 7-9 (Revision), dated Oct 22, 2008)11 Transfer Pricing Administrative Guidelines 5–3, 5–4
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–3, 5–4

6Provisional Translation
Documents describing any transfer pricing examinations, appeals, lawsuits, etc., involving
the foreign-related entity/entities, and details of past taxation in its/their homecountry/countries.



Documents describing the results of applying the proposed TPM to the prior three taxable
years.



Other reference documents required for the APA.

c. Taxable years to be confirmed12
In principle, three to five taxable years are to be confirmed.
(5) Review of APA Request
The review is carried out based on the following:a. Information about the business conditions of the APA applicant and its foreign-related
entity/entities, and about the foreign-related transactions
b. An analysis of the probability of any income transfer being made in past years that constitute thebasic data for review
c. An analysis of the appropriateness of the method of calculating the arm’s length priced. An analysis of the comparability of the comparable transactions (e.g. the comparability of theitems listed below)
Types of inventories, nature of services rendered, etc.

Stage of transactions



Volume of transactions

Terms and conditions of the transactions

Functions performed and risks assumed by the party/parties concernedIntangible assets

Business strategy

Timing of market entryMarket conditions(6) Effects of APA13
When a taxpayer files its tax returns in compliance with a confirmed APA, the confirmed
transactions are treated as having been conducted at the arm’s length price. If the taxpayer’s
income of any past APA period turns out to be less than the appropriate figure calculated using theconfirmed TPM, the taxpayer must file an amended tax return for that year. However, no penalties
will be imposed under such circumstances.

12

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

7

Provisional Translation(7) Examination of Compliance Conditions14
A taxpayer who has received an APA confirmation (hereinafter referred to as a “confirmed
corporation”) shall be requested to submit reports (hereinafter referred to as “annual compliancereports”) explaining that its declared income is compliant with the APA by the due date of the
taxpayer’s final tax return for each year covered by the APA, or during the period specified by theDistrict Director of the Tax Office. The RTB’s division in charge will examine the reports.
(8) Compensating Adjustments15
In the event that the income (actual figure) derived from confirmed transactions for the years
covered by an APA is not compliant with the APA, the taxpayer must make the necessary
adjustments (hereinafter referred to as a “compensating adjustment”). If the confirmed corporation
makes any adjustments in its financial statements to comply with the APA, the adjustments shallbe treated as legitimate transactions for the purpose of transfer pricing.
If it turns out that the income of the confirmed corporation is less than the appropriate figure
calculated using the confirmed TPM, one of the two following procedures must be followed:
a. Correction of the taxable income on the final tax return
The confirmed corporation shall correct the taxable income on its final return if it turns out
that, after the closing date of the financial statements and before the due date of the final tax
return, the income was understated in the financial statements pertaining to the confirmed
taxable years due to an inconsistency between an actual transaction and the result of applying
the confirmed TPM.
b. Amended return
The confirmed corporation shall promptly file an amended tax return if, after filing the tax
return, it turns out that the income was understated in the tax return pertaining to aconfirmed taxable year due to an inconsistency between an actual transaction and the result ofapplying the confirmed TPM.
If it turns out that the income of the confirmed corporation is more than the appropriate figure
calculated using the confirmed TPM, the confirmed corporation may adjust its income in one of thefollowing two ways:
a. Correction of the taxable income on the final tax return
The confirmed corporation may correct the taxable income on the final tax return based on themutual agreement concerning compensating adjustments if it turns out that, after the closing
date for the financial statements and before filing the final tax return, the income in thefinancial statements pertaining to a confirmed taxable year was overstated due to an
14

Transfer Pricing Administrative Guidelines 5–18
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–18
15 Transfer Pricing Administrative Guidelines 5–19
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–19

8

Provisional Translation
inconsistency between an actual transaction and the result of applying the confirmed transfer
pricing method.
b. Request for correction
The confirmed corporation may file a request for correction based on the mutual agreement
concerning compensating adjustments, if it turns out that the income was overstated due to aninconsistency between an actual transaction and the result of applying the confirmed TPM in
the tax returns after its final tax returns pertaining to the confirmed taxable years are filed.
(9) Revision, Cancellation and Renewal of APA
a. Revision16
In cases where there is a situation that causes a material difference to business and economic
conditions essential to the continuation of the APA, the taxpayer shall file a request for an APA
revision.
b. Cancellation17
An APA shall be cancelled under any of the following circumstances:

The confirmed corporation has not submitted a request for revision even when amaterial difference in critical assumptions necessary to continue the APA has arisen.

The confirmed corporation has failed to comply with the APA in its tax return.

The confirmed corporation has failed to submit an annual compliance report, or thereport contains any material error.



Any of the facts on which the APA request is basedare revealed to be false, or the APA
request contains a material error.

c. Renewal18
In cases where a confirmed corporation files a request for renewal of its APA for business years
following the confirmed years, the request shall be processed in accordance with the procedures fora new APA request.
(10) Rollback19
When a taxpayer requests “rollback” treatment (i.e. retrospective application) of the TPM to theyears prior to the APA period, and the TPM confirmed in the BAPA is regarded as the mostappropriate TPM for the years prior to the APA period, the rollback may be permitted.

16

Transfer Pricing Administrative Guidelines 5–20
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–20
17 Transfer Pricing Administrative Guidelines 5–21
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–21
18 Transfer Pricing Administrative Guidelines 5–22
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–22
19 Transfer Pricing Administrative Guidelines 5–23
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–23

9

Provisional Translation(11) Procedures for Consolidated Corporations
The NTA established the Commissioner’s Directive on the Operation of Transfer Pricing Related toConsolidated Corporate Groups in April 2005.20 The parent corporation shall file an APA request
concerning its own transactions with foreign-related entities in the name of the parent corporation
with the District Director of the Tax Office, with jurisdiction over the place where it pays its tax.
The parent corporation, instead of its subsidiary, shall also file an APA request concerning theforeign-related transactions of the consolidated subsidiary with the District Director of the Tax
Office, with jurisdiction over the place where it pays its tax21.
The Commissioner’s Directive on Mutual Agreement Procedures (Administrative Guidelines) was
also revised to designate the consolidated parent corporation as the entity required to file a MAP
request on behalf of its subsidiaries.22(12) Pre-filing Consultation23
A Pre-filing Consultation is defined as a consultation held prior to an APA request (including
anonymous consultations conducted through an agent) made by the corporation seeking to receive
the confirmation from the RTB’s division in charge (including, where necessary, the NTA’s divisionin charge and the Office of Mutual Agreement Procedures) concerning the TPM.
Through a Pre-filing Consultation, both the taxpayer and the APA team can establish a common
basic understanding on the APA request. In doing so, it is expected that effects such as a reductionin the taxpayer’s burden to prepare necessary documents and facilitation of the review conductedby the RTB’s APA team will be brought about, as a result of which the APA teams offer advice at
pre-filing consultations in consideration of the following points:
・ Explaining necessary matters on APA procedures(e.g., how to prepare the APA request
and its attachments, the due date of filing, etc.).
・ Understanding the details of foreign-related transactions on which advice is sought andproviding the taxpayer with the necessary information to make an appropriate decision
as to whether or not to apply for an APA, and what kind of request to make.

20

See footnote 5.
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–1
22 Document ID: Office of Mutual Agreement Procedures 1-18 etc. dated June 8, 2005 (amended)
23 Transfer Pricing Administrative Guidelines 1–1, 5–10
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 1–1, 5–10
21

10

Provisional Translation

6. Flow of APA Process
In Japan, an APA commences with the request of the taxpayer. The NTA does not charge any fee
for APA proceedings. BAPA procedures, as a rule, can be divided into the following four steps: (1)submission of an APA request, (2) review of the request by the RTB’s APA review team, (3) MAP
negotiations and agreements, and (4) review of annual compliance reports, etc.
(1) Submission of APA Request
The taxpayer may have a pre-filing consultation with the tax authority before deciding whether toapply for an APA.24 Where a MAP is likely to be requested at a later date, the MAP Office of the
NTA may participate in the consultation, in addition to the relevant divisions of the RTB and of the
NTA in charge of the APA. Further, there may be cases where the taxpayer applies for an APA,
after a transfer pricing examination that resulted in a transfer pricing adjustment, in order to avoid
the risk of being taxed in the future and ensure tax predictability for its business. In such a case, if
a MAP is under way regarding the former transfer pricing adjustment case, the taxpayer can
submit an APA request to the MAP Office and then arrange for a pre-filing consultation.
In cases where an applicant for an APA has not filed a MAP request, the NTA recommends that theapplicant file a MAP request if it is confirmed that the taxpayer intends to do so25.
APA requests are submitted to the Tax Office or the RTB. The taxpayer is required to attach thenecessary documents (see 5(4)b) to the request form for the purpose of facilitating the review of APA
requests by the RTB’s APA review team.
(2) Review of Request by the RTB’s APA Review Team
When the APA request is submitted, the relevant division of the RTB designates a tax examiner incharge of the request and commences the review immediately. The APA review staff designates
request documents required for the review in addition to the documents attached to the APA
request. The RTB’s APA review team then reports the results of its review to the division in charge
at the NTA. The NTA’s division reviews the report internally and sends it to the MAP Office.
The RTB’s APA review team conducts its review in accordance with the Transfer Pricing
Administrative Guidelines 5-11 (Review of APA Requests).

24

Transfer Pricing Administrative Guidelines 5–10
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–10
25 Transfer Pricing Administrative Guidelines 5–12
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–12

11

Provisional Translation(3) MAP Negotiations and Agreements26
In the case of a BAPA, a CA analyst drafts a position paper based on the conclusion reached in the
APA review by the RTB’s APA review team. Face-to-face negotiations between the CA staff of the tax
agencies of the countries concerned are generally held several times a year. In addition, CAs
exchange views by telephone, fax, and other means. The CA staff and the APA review staff also
exchange views based on the circumstances of the MAP to confirm material facts.
When an APA agreement with terms the same as those of the original APA request is reached, the
RTB’s APA review team sends a notice of APA confirmation to the taxpayer. When an APA
agreement with terms different from those of the original APA request is reached, the taxpayer isrequired to submit a modified APA request in accordance with the agreement. The RTB’s APA
review team then sends a notice of APA confirmation to the taxpayer.27(4) Review of Annual Compliance Report etc.28
After the APA confirmation notice is received, the taxpayer is required to submit, by the due date ofits final tax return or by another designated date, the annual compliance report that explains
whether or not the business results reported in the year’s tax return accord with the agreement.
The RTB’s division in charge, if necessary, may request a further explanation from the taxpayer andalso visit the taxpayer for review. In cases where income figures are lower than the figures agreed,
they must be adjusted to the figures agreed in the amended tax return. Reviews of AnnualCompliance Reports carried out by the RTB’s division in charge correspond to tax examinations forcorporation tax. Conversely, in cases where income figures are higher than the figures agreed, MAP
negotiations must be held. The taxpayer must submit a MAP request and make a compensating
adjustment (request for correction of tax return for downward adjustment) based on the new MAP
agreement.
When the conditions provided in critical assumptions change, the taxpayer must submit a new MAP
request.

26

Transfer Pricing Administrative Guidelines 5–13
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–13
27 In the case of a unilateral APA, a modified APA request may be requested when the RTB’s APA review groupjudges the original APA request to be unreasonable. If the taxpayer does not accept the request for
modification from the APA review group, the APA review group sends a notice of non-confirmation. When thecontent of the APA request is approved, or when the taxpayer accepts the required modification, the RTB’s APA
review group sends a notice of confirmation to the taxpayer.
28 Transfer Pricing Administrative Guidelines 5–17, 5–18
Transfer Pricing Administrative Guidelines on Consolidated Corporate Groups 5–17, 5–18

12

Provisional Translation

Flowchart of BAPA Procedures(3) MAP Request
MAP Office of the
NTA

Foreign Tax Authority(5) Negotiation(6) Tentative Agreement(8) Agreement(9) Notice of Agreement(7)Confirmation(2) APA
Application(9)Notice ofAgreement(2) MAP Request(4) Review of APA(1) APA
Application

Regional Taxation Bureau
Relevant Division in the NTA(10) Notice ofConfirmation(1) MAP Request
Tax Office

13

TaxpayerProvisional Translation

7. Staff in Charge of BAPA Cases(1) Staff in the MAP Office
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 (Office forthe Deputy Commissioner [International Affairs]), who dealt with international conferences andmutual agreement procedures. The Office of International Operations was established in 1986.
Subsequently, the position of the Director responsible for MAP cases was created in 1995. The
Office of Mutual Agreement Procedures was established in July 1999. One more director post
mainly responsible for APAs was created in July 2008.
The staff of the Office of Mutual Agreement Procedures are responsible for all MAP cases; theyhandle not only BAPA cases, but also transfer pricing taxation cases, withholding cases, permanentestablishment cases, etc. The table below describes the current structure of the Office of Mutual
Agreement Procedures.
Group
Director, Office of Mutual
DeputyAgreement Procedures

Commissioner(International
Affairs)

Jurisdiction

1–a
1–b

Mainly North America, Asia

2–aand Oceania

2–b

Director(Mutual

APA1Agreement Procedures)

APA2

Director(Mutual3–aAgreement Procedures)

3–b

Mainly North America (APA)

Mainly Western Europe(2) APA Review Groups
The Large Enterprise Examination Division of the Large Enterprise Examination and Criminal
Investigation Department of the NTA established the post of Director (International Examination)
and Transfer Pricing Section No. 1-3 in 1987. They supervise and guide transfer pricing taxationand the APA of each RTB.
National Tax Agency
Deputy Commissioner(Large Enterprise
Examination andCriminal Investigation)

Director,
Large Enterprise
Examination Division

Director(International Examination)

14

Transfer Pricing
SectionNo. 1-3

Provisional Translation
The table below describes the current structure of the RTB.
Regional Taxation Bureau (Office)Tokyo RTB
Osaka RTB
Nagoya RTB

Kantoshinetsu RTB

Other RTBs

First Large Enterprise
Examination
Department
First Large Enterprise
Examination
Department
Large Enterprise
Examination
Department
Large Enterprise
Examination andCriminal Investigation
Department
Large Enterprise
Examination andCriminal Investigation
Department

Deputy Assistant Regional
Commissioner (International)

Advance Pricing
Arrangement Division
Advance Pricing
Arrangement DivisionInternational
Examination of Large
Enterprise DivisionInternational
Examination of Large
Enterprise Division
Management Division(Large Enterprise
Examination)
Large Enterprise
Examination Division

Okinawa Regional Taxation Office15

Provisional Translation

8. Taxpayer’s Cooperation in APA
The APA system is based on the voluntary applications of taxpayers. The taxpayer’s cooperation
with the review of an APA request is therefore indispensable to its proceeding smoothly. In
particular, timely submission of relevant documents and other information significantly contributes
to efficient reviews and MAP processes. Prompt submission is therefore essential.
Furthermore, when an APA request is submitted to a foreign tax administration, the APA
application should be submitted simultaneously to the NTA, in order to enable a more effective casereview and BAPA negotiations.
Even after the commencement of the MAP process, CA analysts often request additional
information for the purpose of, for example, verifying facts. On such occasions, the taxpayer’s
prompt response is highly appreciated.

16

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(07)CA(99)CA

East Europe（17 countries）
Romania(76)
Poland(80)
Slovakia２ (77)Armenia１(86)
Czech２(77)
Ukraine１(86)
１
Hungary(80)
Uzbekistan (86)Azerbaijan１ (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 (06)CASingapore (94)CA
Indonesia(82)
Viet Nam(95)CA
China３(83)
Korea(98)CA
Thailand(90)CA
Malaysia (99)CASouth・Central Asia
(4 countries）
Pakistan(08)CA
Sri Lanka
(67)
India
(06)CA
Bangladesh(91)CANOTICE-１．The former Japan-Soviet Union convention is inherited.
２．The former Japan-Czechoslovakia convention is inherited.
３．This convention is not applicable to Hong Kong or Macau.
４. The former Japan-U.K. convention is inherited.

Oceania (3 countries)
Fiji４
(62)
New Zealand (67)Australia(08)CA【Explanatory note】
１． Countries with bold indicate
OECD member countries (22countries).
２． “CA” indicates countries withwhich we have correlative
adjustment provision in the tax
treaty (20 countries).
３． The numbers in parentheses
indicate the final year inwhich each executed convention
was revised (signed).