With the advancement of globalization, there has been an increase in small and medium-sized enterprises (SMEs) that have overseas group companies and manufacturing facilities. In the 2016 tax system revision, certain companies with transactions involving overseas group companies were required to simultaneously document a “Local File.” Specifically, if there were overseas transactions between group companies, and if the transaction amount with foreign entities in the previous fiscal year exceeded 5 billion yen or the total amount of intangible asset transactions (inflows and outflows) exceeded 300 million yen, the obligation was imposed to create a Local File based on reasonably obtainable information at the time of the transaction or filing, and to keep it until the tax return deadline.
Companies conducting transactions with overseas-related entities, even SMEs, may undergo tax audits related to transfer pricing. Failing to create a “Local File” can lead to the risk of paying unnecessary taxes and a higher probability of extended tax audits. There’s also a risk of being subject to estimated taxation or taxation based on the investigation of comparable companies.
The creation of transfer pricing documentation is a critical tax issue for companies engaged in international business expansion. We are here to assist in the preparation of appropriate Local Files to minimize tax-related risks.
Companies that may benefit from our services
- Companies lacking staff to create transfer pricing documentation and unable to secure the necessary talent for this task.
- Companies with insufficient knowledge of transfer pricing regulations and tax systems, making it challenging to create appropriate documentation internally.
- Companies operating in multiple countries, struggling to comply with the transfer pricing rules and regulations of each country.
- Companies with past experiences of undergoing tax audits or at risk of facing them.
- Companies looking to ensure the quality of transfer pricing documentation and minimize tax-related risks.
- Companies considering outsourcing to external experts due to cost considerations, as they find it more cost-effective than internal production.
- Companies with business activities that require document creation during specific peak periods, such as tax return deadlines.