Japan has introduced a new documentation preservation regime applicable to specified related-party transactions undertaken in fiscal years beginning on or after 1 April 2026. The provisions in the regime requires taxpayers to obtain or prepare and preserve supplementary documentation where the records already maintained for a covered related-party transaction do not contain the prescribed information concerning the transaction and the calculation of the consideration.
Unlike Japan’s transfer pricing documentation rules which focus on demonstrating arm’s length pricing for specified cross-border dealings, this regime requires taxpayers to maintain & preserve documentation supporting related party transactions that generate specified categories of expenses. For many businesses, particularly those operating shared service centers or managing intellectual property within a corporate group, the practical impact lies in strengthening governance and documentation processes, including shared cost agreements.
Why has the regime been introduced?
Materials presented during the 2025 Government Tax Commission discussions highlighted cases in which the tax authorities experienced difficulty obtaining adequate supporting information for intragroup cost-allocation arrangements, including shared-cost arrangements. The legislation itself, however, does not identify any particular class of taxpayer as its principal target.[1]
The regime is intended to ensure that the relevant information is documented no later than the corporate tax return filing deadline and can be produced when requested during a tax examination. Viewed in practical terms, the regime strengthens the evidentiary framework surrounding certain intragroup expenses.
Who is covered?
The regime applies broadly to domestic corporations subject to Japanese corporation tax, including blue-return corporations and other domestic taxable entities[2].
Foreign corporations with a permanent establishment in Japan are outside the scope. The MOF’s Explanation of the FY2026 Tax Reform states that such foreign corporations are already subject to documentation requirements concerning transactions relevant to the determination of income attributable to the permanent establishment.[3]
What constitutes a related party?
The term “related party” is not restricted to foreign affiliates. Subject to the statutory ownership, control and related criteria, transactions with domestic related parties may also fall within the regime. Businesses should therefore assess both domestic and cross-border intragroup arrangements when evaluating whether the regime applies.
Which transactions are covered?
The regime is limited to specified related-party transactions that generate selling, general and administrative (SG&A) expenses.[4] These include transfers or licensing of industrial property rights, management and technical service arrangements, shared cost agreements and certain cost recharge arrangements.
The ‘specified transactions’ subject to this regime include the following transactions under which a related party transfers or lends specified industrial property rights, or provides prescribed services, to a domestic corporation:
- Transactions related to Industrial Property Rights (IPR), etc.; and
- Transactions related to provision of services
Transactions that do not fall within the statutory categories are generally outside the scope of this particular documentation regime.
What documentation must be retained?
The required information must be sufficiently detailed to allow a third party to understand objectively the nature of the transaction and the basis on which the consideration or allocated cost was calculated. The regime is not intended to require uniformly extensive documentation beyond what would ordinarily be expected in light of the transaction’s nature and circumstances.
- For transactions related to industrial property rights etc., information around the content, scope and duration of the IPR should be maintained. Additionally, details regarding the use of such IPR in the business of the Japanese domestic corporation along with the amount of consideration & the calculation methods underlying the calculation are required to be maintained too.
- For transactions related to provision of services, corporations are required to maintain documentary evidence containing details related to content of business activities related to the services; specific details of services & the manner of provision; and the amount of consideration or amount of costs incurred for providing the services & the method of calculation.
-
- When services are rendered as a business activity related to cost-sharing, then information such as method of implementation, location, number of sessions, details of benefit received by the domestic corporation from the business activity, and information on calculation method to compute the basis for determining the costs borne by the domestic corporation are to be maintained too.
- When services are provided as part of management or guidance, then information on the specific details of the service, the manner of provision, frequency / period of provision, and the method of calculating the amount of consideration for providing the services is to be maintained.
The required documentation must generally be obtained or prepared by the due date for filing the corporate tax return for the relevant fiscal year and retained for seven years at the taxpayer’s place of tax payment or the relevant domestic office. A longer ten-year preservation period may apply where the documentation relates to a fiscal year in which tax losses arose and those losses are carried forward. This reflects the longer statutory preservation period applicable to documentation supporting the carryforward of net operating losses. Accordingly, where a fiscal year gives rise to a tax loss that is carried forward, the relevant documentation should be retained for ten years rather than the general seven-year period.
Cases where separate documentation is not required
- Where an existing Local File contains sufficient information to allow the covered transaction and its pricing basis to be objectively understood, there may be no missing specified matters and the special documentation requirement will not apply to that transaction. Businesses should nevertheless confirm that the Local File addresses all information required under the new regime.
- Where the required information has been received and preserved as electronic transaction records in accordance with the Act on Special Provisions for the Preservation of National Tax-related Books and Documents, taxpayers are not required to separately preserve the same information under this regime. In such cases, the electronic record preservation requirements under the Electronic Books Preservation Act will apply instead.
Practical considerations
- The NTA Administrative Guidelines clarify that compliance with the preservation obligation is not itself a statutory condition for deductibility. Accordingly, the absence of the documentation does not, on its own, result in automatic disallowance of the underlying expense. The deductibility of the expense remains subject to the substantive facts and available evidence.
- Documents do not necessarily need to be physically retained at the taxpayer's office. They may be centrally maintained by a parent company or another related party, including overseas, provided the taxpayer can obtain without delay and present them during a tax examination.
- In case the documents between related parties do not contain the aforementioned information, then such documents should be created / obtained.
Consequences of non-compliance
- Failure to comply may constitute grounds for revocation of blue-return approval. While revocation does not automatically flow from the mere absence of documentation, the tax authorities will consider the nature & seriousness of the deficiency – whether it can be corrected, the surrounding circumstances, and the extent to which the absence of documentation affects the conduct of the tax examination. Where deficiencies relate to significant related-party transactions & materially hinder the tax examination, the consequences may extend beyond administrative improvement guidance.
It is important to note here that revocation of blue return status may also result in the loss of important tax benefits, including the ability to utilize net operating loss carryforwards and eligibility for certain tax incentives available under the Act on Special Measures Concerning Taxation.
- Where documentation is incomplete or insufficient, taxpayers are generally given an opportunity to obtain or supplement the required documentation within a reasonable period before further action is considered.
- The documentation preservation obligation applies independently of blue return status and continues to apply to corporations within the scope of the regime.
- Although revocation of blue return approval is not relevant for non-blue return corporations, inadequate documentation may affect the tax authorities' ability to determine taxable income and could result in an estimated assessment where the actual tax base cannot be reliably established.
Conclusion
The significance of this regime lies not in the creation of another pricing rule, but in the standard of evidence Japan now expects taxpayers to maintain around selected intragroup expenses. A contract, invoice or accounting entry that records only the amount charged may no longer be sufficient: the underlying right or service, the benefit received and the method used to calculate the consideration must be capable of objective explanation.
The regime also closes an important practical gap between the existence of a related-party arrangement and the evidence available to test it. Its reach across both domestic and cross-border relationships demonstrates that the issue is not where the related party is located, but whether the transaction can be substantiated.
For businesses, the central message is clear. Documentation should no longer be treated as a file assembled only when a tax examination begins. It must form part of the transaction itself—from the design of the arrangement and calculation of the charge to the filing of the return and preservation of the supporting evidence. Groups that embed this discipline into their governance processes will not merely comply with a new record-retention rule; they will be better positioned to defend deductions, preserve tax attributes and withstand increasingly evidence-driven tax scrutiny.
[1] Ministry of Finance, “Explanatory Material”, issued June 11, 2025.
[2] Article 67-2 of the Ordinance for Enforcement of the Corporation Tax Act.
[3] Ministry of Finance, “Explanation of the FY2026 Tax Reform”, issued [month] 2025.
[4] Article 59-2(1) of the Ordinance for Enforcement of the Corporation Tax Act, read together with Article 22(3)(ii) of the Corporation Tax Act.
Service
Learn more about how our International Tax Services can help you
