Asia-Pacific Transfer Pricing Handbook

Chapter Nineteen

Japanese Guidelines Address Diverse Transfer Pricing Issues

The Japanese transfer pricing regulations address a number of diverse issues as part of the case examples. These examples address:

• Case 23: Determining whether Services Provide Commercial Value
• Case 24: Multiple Year Considerations
• Case 25: Establishing the Target Profit Margin
• Case 26: Critical Assumptions

CASE 23: DETERMINING WHETHER SERVICES PROVIDE COMMERCIAL VALUE

The schematic of the business relations specifies:

• Japanese Corporation P manufactures and sells Product A.
• Ten years ago, Japanese Corporation P established three companies as subsidiaries to produce and to distribute Product A in their respective countries:
  • Foreign-related person SX in Country X
  • Foreign-related person SY in Country Y
  • Foreign-related person SZ in Country Z
  • Japanese Corporation P provides services to foreign-related person SX, to foreign-related person SY, and to foreign-related person SZ
• The S companies procure all of their parts and raw materials locally to produce and sell Product A in their respective countries.
• Japanese Corporation P has a unit that has responsibility for various operations concerning the S group.

Japanese Corporation P

Japanese Corporation P provides these services to the S group:

a. Japanese Corporation P determines the human resource policy at the S group and interviews candidate directors at the S group.

b. Japanese Corporation P manages business operations at the S group through weekly teleconferencing. ...