Support for transfer pricing tax audits

According to statistics released by the Japanese National Tax Agency, for the period from 1 July 2019 to 30 June 2020, 212 transfer pricing assessments were performed, covering a total of JPY53.4bn. The average amount per assessment was approximately JPY250m (nearly USD2.5m). 

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 may result 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


  • Documenting the impact
    • COVID-19 may have caused reduced profits or losses for Japanese affiliates of foreign multi-national entities (MNEs).
    • The Japanese tax authorities are likely to challenge claims of reduced profits for limited-risk entities, such as limited risk distributors.
    • Taxpayers need to determine and document the quantitative impact of COVID-19 on their business and prepare rationale for a limited-risk entity sharing in the impact.
    • Typical benchmarking support will be difficult for FY2020, since comparable data reflecting COVID-19 will not soon be available. Taxpayers should therefore consider alternative approaches, such as making adjustments to the tested party’s financial data.

Other areas of focus for audits

  • 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 (2.5% interest rate per annum for the period on and after 1 January 2021) are imposed.


{{contentList.dataService.numberHits}} {{contentList.dataService.numberHits == 1 ? 'result' : 'results'}}


daisuke miyajima
Daisuke Miyajima

PwC Tax Japan Partner