On October 30, 2018, Japan’s National Tax Agency (NTA) issued a report containing statistics on its initial automatic exchanges of financial account information and country-by-country (CbC) reports, both of which occurred in 2018. An overview of the reporting and exchange requirements is provided below.
The NTA performed initial exchanges of financial account information with participating jurisdictions under the OECD’s Common Reporting Standard (CRS) in September 2018. As of October 30th, the NTA sent information on 550,705 financial accounts to 64 jurisdictions, and received information on 89,672 accounts from 58 jurisdictions. An attachment in the report identifies the jurisdictions with which the NTA will automatically exchange financial information. The NTA exchanged financial information via the OECD’s Common Transmission System (CTS).
Editor’s Note: the OECD developed the CTS to facilitate the automatic exchange of financial account information, CbC reporting, and other exchanges of information between tax administrations.
Regarding exchanges of CbC reports, as of October 30th, the NTA provided 609 CbC reports to 39 jurisdictions, and received 558 reports from 29 jurisdictions. An attachment to the report identifies the jurisdictions with which the exchanges took place in 2018.
CbC Reporting Background
On March 29, 2016, Japan enacted the 2016 Tax Reform Bill, implementing tax reforms, which the Japanese Cabinet approved on December 24, 2015. The amendments implemented the three-tier standardized transfer pricing requirements in the OECD BEPS Action 13 recommendations (i.e., CbC reporting, and master and local files).
The measures require annual preparation and filing of a master file and CbC report by the “ultimate parent company” of a multinational group. Existing local file requirements in Article 22-10(1) of the Ordinance for Enforcement of the Act on Special Measures Concerning Taxation of Japan (“ASMT Ministerial Order”) were amended to include additional reportable items to align with the BEPS Action 13 recommendations.
Filing of the CbC report is required in Japan for taxpayers belonging to a multinational group that has consolidated revenues exceeding JPY 100 billion in the preceding fiscal year. The report is required for Japanese parent companies or any Japanese subsidiaries or branches of foreign multinationals.
The CbC report is required in Japan for fiscal years beginning on or after April 1, 2016, with the submission deadline one year following the close of the ultimate parent company’s fiscal year to which the CbC report relates.
On June 30, 2016, the NTA issued updated guidance on the three-tiered transfer pricing documentation requirements, with respect to the format of CbC reporting. The June 30th guidance also provides flow charts to show whether corporations have a duty to submit a CbC report notification for their ultimate parent entity, as well as a CbC report.
On January 27, 2016, Japan was among 31 countries that signed the OECD Multilateral Competent Authority Agreement for the automatic exchange of CbC reports (“CbC MCAA”). Under the CbC MCAA, signatories may exchange CbC reports with other signatories if they have CbC reporting requirements in place and are a party to the OECD Convention on Mutual Administrative Assistance in Tax Matters.
CRS Background
Japan signed the OECD Multilateral Competent Authority Agreement (MCAA), which implements the G20’s and OECD’s Standard for the Automatic Exchange of Financial Information in Tax Matters. Financial institutions in Japan are required to identify any accounts held by non-residents and report certain related information to the NTA via the CRS beginning in September 2018.
On March 31, 2015, Japan enacted the 2015 Tax Reform Act, which includes measures to implement the CRS from January 1, 2017. Individuals who have bank accounts in Japan must report the following information to their Japanese bank starting on January 1, 2017:
- Name
- Address
- Date of birth
- Resident country
Taxpayers who reside outside Japan must also provide their taxpayer identification number used in their resident country. The Japanese bank then reports the information, along with account balances and transactions as of December 31st, to the NTA by the following April 30th.
On September 27, 2017, the NTA issued a list of countries with which it intends to automatically exchange financial account information under the CRS, starting in 2018. The list consists of 102 countries (as of August 7, 2017).
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