A Practical Guide to the Four-Tiered Documentation Approach and Contemporaneous Documentation Requirements in Japan for Foreign Multinationals

As a part of the 2016 tax reform in Japan, the Special Taxation Measures Law (STML) was revised based on the recommendations of the OECD Base Erosion and Profit Shifting (BEPS) Project, and a four-tiered documentation approach was introduced, together with the concept of contemporaneous documentation. Although the rules have been in force for some time, a few of the items have their first submission deadlines in the fiscal year that started or is starting on and after 1 April 2018. The purpose of this article is to broadly describe the four-tiered documentation requirements, clarify the differences between some of the Japanese and the OECD-based requirements, as well as provide practical guidance on the rules to consider for foreign corporations in Japan covered by the documentation submission requirements in articles 66-4-4 and 66-4-5 of the STML or subject to contemporaneous documentation as set out in article 66-4(6) of the STML.