Japan’s 2026 tax reform introduced new recordkeeping obligations for certain related party transactions. The requirements are separate from — and apply in addition to — Japan’s transfer pricing documentation rules. They apply under the Corporate Tax Act to transactions undertaken in fiscal years beginning on or after 1 April 2026.
The rules are intended to ensure that taxpayers retain sufficient information for the Japanese tax authorities, the National Tax Agency (NTA), to understand both the substance of a related party transaction and how the consideration was determined. They apply to transactions with both domestic and foreign related parties and may be particularly relevant to Japanese companies that pay management fees, shared service charges or make other intragroup payments to overseas parent companies or other foreign group entities.
Corporate groups often centralise functions such as research and development, advertising, IT systems, human resources, accounting and other administrative activities, and then allocate some or all of the related costs among group companies. Documentation for such transactions may not always provide sufficient information to identify the services provided or explain how the charges were calculated. The new supplementary recordkeeping requirements are intended to address those gaps.
Intragroup cost allocation arrangements are an area of particular focus. For example, a parent company may perform centralised management, administrative or other support functions for the group and allocate the related costs to its subsidiaries. Because the consideration is set within the group rather than between independent parties, the NTA may examine both the substance of the transaction and the basis for calculating and allocating the costs.
NTA guidance states that taxpayers are not expected to retain unnecessarily detailed documentation. The rules aim to allow the NTA to understand the substance of the relevant related party transactions. Taxpayers must, however, retain sufficient objective information to identify the nature of each transaction and the method used to calculate the consideration.
The requirements apply to specified transactions between a Japanese domestic corporation and related parties that meet the applicable relationship tests. Related parties may include domestic or foreign parent companies, subsidiaries and sister companies, depending on whether the applicable controlling relationship requirements are met.
Foreign corporations, including those with a permanent establishment or branch in Japan, are outside the scope of the new recordkeeping requirements and therefore are not required to prepare or retain supplementary documentation under these rules.
Potentially covered transactions include the following:
Importantly, a Japanese taxpayer does not have to prepare a separate document for every related party transaction. If existing records — such as agreements, invoices, purchase orders or quotations — already contain the required information, no separate supplementary document is necessary. This should mitigate the additional burden on companies whose records are sufficiently detailed.
Although the corporate income tax recordkeeping requirements are separate from Japan’s transfer pricing documentation rules, an existing local file may meet these requirements if it contains all the required information for the transaction.
Additional documentation may be necessary when existing records use only generic descriptions. An invoice stating “Management Fee” or “Service Fee” may not adequately describe the services or explain how the amount was calculated. In that case, the taxpayer must prepare and retain a supplementary document containing the missing information. For example, a Japanese subsidiary receiving management support, business-strategy assistance or IT services from an overseas parent should retain records describing the services and the basis for the charges. If the intercompany agreement does not provide sufficient detail, the subsidiary may also need supporting materials, such as service descriptions and cost allocation calculations.
This issue is especially relevant to management charges and shared service arrangements involving centrally incurred costs. Companies should be able to explain both the services covered and the methodology or allocation key used to determine the amount charged to the Japanese entity.
The documentation obligations are not limited to large multinational enterprises. They may affect any Japanese domestic company that routinely transacts with related parties, including companies making payments to overseas parent companies or other group entities.
Affected companies should review their intercompany agreements, invoices and supporting records to confirm that they clearly identify each transaction and explain how the charge was calculated. Management fees, shared service charges and common cost allocations merit particular attention when invoices or agreements contain only high-level descriptions.
Failure to retain the required documentation does not, by itself, result in denial of a deduction for the related expense for Japanese corporate tax purposes. However, the consequences may be significant for companies filing “blue form” corporate tax returns. Failure to retain the required records may constitute grounds for revoking blue-form filing status. Before deciding whether revocation is appropriate, however, the NTA generally will give the taxpayer a reasonable period to prepare or obtain the missing or insufficient documentation and produce it.
Because the supplementary documentation obligations apply to fiscal years beginning on or after 1 April 2026, affected companies should assess their domestic and cross-border related party transactions and documentation practices. The review should identify any gaps in agreements, invoices and cost allocation records and determine what additional support is needed to explain each transaction and the basis for the charge.
Kenichiro Kishi
BDO in Japan
The rules are intended to ensure that taxpayers retain sufficient information for the Japanese tax authorities, the National Tax Agency (NTA), to understand both the substance of a related party transaction and how the consideration was determined. They apply to transactions with both domestic and foreign related parties and may be particularly relevant to Japanese companies that pay management fees, shared service charges or make other intragroup payments to overseas parent companies or other foreign group entities.
Background to the New Requirements
Corporate groups often centralise functions such as research and development, advertising, IT systems, human resources, accounting and other administrative activities, and then allocate some or all of the related costs among group companies. Documentation for such transactions may not always provide sufficient information to identify the services provided or explain how the charges were calculated. The new supplementary recordkeeping requirements are intended to address those gaps.Intragroup cost allocation arrangements are an area of particular focus. For example, a parent company may perform centralised management, administrative or other support functions for the group and allocate the related costs to its subsidiaries. Because the consideration is set within the group rather than between independent parties, the NTA may examine both the substance of the transaction and the basis for calculating and allocating the costs.
NTA guidance states that taxpayers are not expected to retain unnecessarily detailed documentation. The rules aim to allow the NTA to understand the substance of the relevant related party transactions. Taxpayers must, however, retain sufficient objective information to identify the nature of each transaction and the method used to calculate the consideration.
What Transactions Are Covered?
The requirements apply to specified transactions between a Japanese domestic corporation and related parties that meet the applicable relationship tests. Related parties may include domestic or foreign parent companies, subsidiaries and sister companies, depending on whether the applicable controlling relationship requirements are met.Foreign corporations, including those with a permanent establishment or branch in Japan, are outside the scope of the new recordkeeping requirements and therefore are not required to prepare or retain supplementary documentation under these rules.
Potentially covered transactions include the following:
- Transfers or licences of patents and know-how;
- Provision of management services, technical support, human resources, accounting and legal services; and
- Provision or maintenance of shared systems, including ERP and accounting systems and cloud platforms.
What Documentation Needs to Be Retained?
Importantly, a Japanese taxpayer does not have to prepare a separate document for every related party transaction. If existing records — such as agreements, invoices, purchase orders or quotations — already contain the required information, no separate supplementary document is necessary. This should mitigate the additional burden on companies whose records are sufficiently detailed.Although the corporate income tax recordkeeping requirements are separate from Japan’s transfer pricing documentation rules, an existing local file may meet these requirements if it contains all the required information for the transaction.
Additional documentation may be necessary when existing records use only generic descriptions. An invoice stating “Management Fee” or “Service Fee” may not adequately describe the services or explain how the amount was calculated. In that case, the taxpayer must prepare and retain a supplementary document containing the missing information. For example, a Japanese subsidiary receiving management support, business-strategy assistance or IT services from an overseas parent should retain records describing the services and the basis for the charges. If the intercompany agreement does not provide sufficient detail, the subsidiary may also need supporting materials, such as service descriptions and cost allocation calculations.
This issue is especially relevant to management charges and shared service arrangements involving centrally incurred costs. Companies should be able to explain both the services covered and the methodology or allocation key used to determine the amount charged to the Japanese entity.
Practical Implications for Multinational Groups
The documentation obligations are not limited to large multinational enterprises. They may affect any Japanese domestic company that routinely transacts with related parties, including companies making payments to overseas parent companies or other group entities.Affected companies should review their intercompany agreements, invoices and supporting records to confirm that they clearly identify each transaction and explain how the charge was calculated. Management fees, shared service charges and common cost allocations merit particular attention when invoices or agreements contain only high-level descriptions.
Failure to retain the required documentation does not, by itself, result in denial of a deduction for the related expense for Japanese corporate tax purposes. However, the consequences may be significant for companies filing “blue form” corporate tax returns. Failure to retain the required records may constitute grounds for revoking blue-form filing status. Before deciding whether revocation is appropriate, however, the NTA generally will give the taxpayer a reasonable period to prepare or obtain the missing or insufficient documentation and produce it.
Because the supplementary documentation obligations apply to fiscal years beginning on or after 1 April 2026, affected companies should assess their domestic and cross-border related party transactions and documentation practices. The review should identify any gaps in agreements, invoices and cost allocation records and determine what additional support is needed to explain each transaction and the basis for the charge.
Kenichiro Kishi
BDO in Japan