Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Japan

Japan has met all aspects of the terms of reference (ToR) for the calendar year 2017 (year in review) and no recommendations are made.

Japan can legally issue three types of rulings within the scope of the transparency framework.

In practice, Japan has issued 51 past rulings; for the period 1 April 2016 - 31 December 2016, Japan issued 12 future rulings; and for the year in review, Japan issued 14 future rulings within the scope of the transparency framework.

Peer input was received from one jurisdiction in respect of the exchanges of information on rulings received from Japan. It was positive, noting that information was complete, in the correct format, received in a timely manner, and that the summary provided a good overview of the ruling.

Introduction

672.  This peer review covers Japan’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

673.  Japan can legally issue the three following types of rulings within the scope of the transparency framework: (i) cross-border unilateral advance pricing arrangements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles; (ii) permanent establishment rulings; and (iii) related party conduit rulings. In Japan, the Rulings and Legal Affairs Divisions and APA Division in each of the 12 Regional Taxation Bureau of the National Tax Agency (“NTA”) are authorised to issue rulings.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

674.  For Japan, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2014 but before 1 April 2016; or (ii) on or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

675.  In the prior year peer review report, it was determined that the NTA’s undertakings to identify past rulings and all potential exchange jurisdictions were sufficient to meet the minimum standard. The NTA’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

676.  For Japan, future rulings are any tax rulings within scope that are issued on or after 1 April 2016.

677.  In the prior year peer review report, it was determined that the NTA’s implementation of a new system to identify future rulings and all potential exchange jurisdictions was sufficient to meet the minimum standard. The NTA’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Review and supervision mechanism (ToR I.4.3)

678.  In the prior year peer review report, it was determined that the NTA’s review and supervision mechanism was sufficient to meet the minimum standard. The NTA’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Conclusion on section A

679.  Japan has met all of the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

680.  Japan has the necessary domestic legal basis to exchange information spontaneously. Japan notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

681.  Japan is a party to international agreements permitting spontaneous exchange of information, including (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”) and (ii) double tax agreements in force with 68 jurisdictions.1

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

682.  In the prior year peer review report, it was determined that the NTA’s completion and exchange of templates were sufficient to meet the minimum standard. The NTA’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard. With respect to the completion of the summary section of the template, Japan confirms that it uses written guidance which provides instruction, including Japanese translation of the Annex C template and its instruction sheet, to complete each section of the template.

683.  For the year in review, the timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	11	0	N/A	These relate to the past rulings that needed to be exchanged with new members of the IF that joined in 2017
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	26	0	N/A
Total	37	0

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	5	70	N/A

Conclusion on section B

684.  Japan has the necessary legal basis for spontaneous exchange of information, a process for completing the templates in a timely way and has completed all exchanges on time. Japan has met all of the ToR for the exchange of information process and no recommendations are made.

C. Statistics (ToR IV)

685.  The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	N/A	N/A
Cross-border unilateral advance pricing arrangement (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	37	Austria, China, Germany, Hong Kong (China), Netherlands, Philippines, Malaysia, Malta, Singapore, Sweden, Thailand, United States
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	N/A	N/A
Permanent establishment rulings	0	N/A
Related party conduit rulings	0	N/A
De minimis rule	N/A	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	N/A	N/A
Total	37

D. Matters related to intellectual property regimes (ToR I.4.1.3)

686.  Japan does not offer an intellectual property regime for which transparency requirements under the Action 5 Report (OECD, 2015) were imposed.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
	No recommendations are made.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Note

← 1.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. Japan also has bilateral agreements in force with Armenia, Bangladesh, Belarus, Brunei Darussalam, Egypt, Fiji, Hong Kong (China), Kuwait, Kyrgyzstan, Oman, Philippines, Qatar, Sri Lanka, Chinese Taipei, Tajikistan, Thailand, Turkey, Turkmenistan, United States, Uzbekistan, Viet Nam and Zambia.