Related-Party Transactions in Japan

Japan has special tax rules for transactions between related parties.

A related-party transaction is a transaction between companies or persons that have a close relationship, such as:

• a parent company and its subsidiary,

• companies under common ownership,

• or other parties with significant control over each other.

Examples include:

• licensing intellectual property,

• providing services,

• or selling goods between related companies.

Why is documentation important?

When a Japanese company makes payments to a related party, tax authorities may require documents showing:

• the details of the transaction,

• how the payment amount was determined,

• and other supporting information.

If this information is not included in the contract itself, separate supporting documents may be needed.

New clarification

Under the special record-keeping rules, a Japanese company that receives these supporting documents must keep them as part of its tax records.

In addition, the related party that prepared the documents should also keep a copy for its own records.

For foreign business owners

If your Japanese company does business with:

• an overseas parent company,

• a group company,

• or another related business,

make sure that transaction documents are properly prepared and retained.

Good documentation can help avoid tax issues later.

Key takeaway

Related-party transactions are common in international business, but they require proper documentation.　Keeping clear records is an important part of tax compliance in Japan.