Japan has implemented Country-by-Country Reporting (CbCR) requirements under the OECD’s BEPS (Base Erosion and Profit Shifting) Action 13. The Ministry of Finance and the National Tax Agency (NTA) enforce these requirements to enhance transparency for multinational enterprises (MNEs) operating in Japan. This guide provides financial directors with key information on CbCR obligations in Japan, including applicability, reporting deadlines, penalties, and additional resources to support compliance.

Applicability of CbCR in Japan

Criteria for Reporting:

• Japan’s CbCR obligations apply to multinational enterprise (MNE) groups that meet the following criteria:
  • The MNE group’s annual consolidated revenue is equal to or exceeds JPY 100 billion (approximately USD 750 million) in the previous fiscal year.
  • The ultimate parent entity (UPE) is a Japanese tax resident, or a Japanese entity is part of an MNE group where:
    • The UPE is in a jurisdiction without CbCR obligations,
    • There is no agreement for the automatic exchange of CbC reports with Japan,
    • The jurisdiction fails in its automatic exchange of information with Japan.

Relevant Legislation:

• Japan’s CbCR requirements are outlined in the Act on Special Measures Concerning Taxation and the NTA’s CbCR guidance, which align with the OECD BEPS standards.

Reporting Requirements

Information to be Reported:

• The CbC report must include jurisdiction-specific data on:
  • Total revenue, categorized by related and unrelated party revenue,
  • Profit or loss before income tax,
  • Income tax paid and accrued,
  • Stated capital and accumulated earnings,
  • Number of employees,
  • Tangible assets, excluding cash or equivalents.
• Each entity within the MNE group must be identified by jurisdiction, along with its main business activities.

Form and Submission:

• The CbC report is filed in XML format using the OECD standard schema, and it must be submitted through Japan’s e-Tax system. Specific instructions and submission requirements can be found on the NTA’s website: NTA – CbCR Resources.

Filing Deadlines

• The CbC report must be filed within 12 months of the fiscal year-end. For example, if the fiscal year ends on 31 March 2024, the report is due by 31 March 2025.
• Additionally, Japanese constituent entities must notify the NTA about the designated reporting entity (UPE or surrogate parent entity) within the group by the end of the fiscal year.

Penalties for Non-Compliance

Penalties:

• Japan enforces penalties for non-compliance, which may include:
  • Financial penalties for failure to submit a CbC report or for providing inaccurate information, calculated based on the severity and circumstances of non-compliance.
  • Potential audits and additional investigations by the NTA for consistent non-compliance.

Defences:

• The NTA may consider reasonable causes when evaluating non-compliance, though MNEs are generally expected to establish reliable compliance measures to meet CbCR requirements accurately and promptly.

Confidentiality and Use of Information

Data Protection:

• CbC report information is used exclusively for transfer pricing and risk assessment purposes. The NTA adheres to strict confidentiality protocols consistent with OECD guidelines.
• Japan participates in the automatic exchange of CbC reports with other countries under OECD-approved frameworks, ensuring mutual compliance with confidentiality standards.