Japan: Administrative guidance and Q&As updated for Pillar Two rules
Guidance and explanatory materials reflect 2025 and 2026 tax reform changes affecting the Japanese IIR, UTPR, and QDMTT.
The National Tax Agency (NTA) on August 7, 2026, released amended administrative guidance and revised Q&As concerning Japan's Pillar Two rules, including the Japanese income inclusion rule (IIR), undertaxed profits rule (UTPR), and qualified domestic minimum top-up tax (QDMTT).
Background
Japan introduced the Japanese IIR under the 2023 tax reform and subsequently enacted the Japanese UTPR and Japanese QDMTT as part of the 2025 tax reform. Amendments made through the 2026 tax reform reflect the agreed coexistence of Pillar Two with certain jurisdictions' minimum tax regimes, including the United States, as well as OECD administrative guidance.
Administrative guidance
The amended administrative guidance incorporates the 2026 tax reform changes to the Japanese IIR, UTPR, and QDMTT. Among the changes, a special measure was introduced under which, when required information is provided through the GloBE Information Return (GIR), jurisdictional adjusted covered taxes may include a jurisdictional special tax credit equivalent amount for purposes of calculating the jurisdictional effective tax rate and current jurisdictional international minimum tax amount.
The guidance relating to the special measure applies to the Japanese IIR for fiscal years beginning on or after January 1, 2026. The remaining guidance applies to the Japanese IIR, UTPR, and QDMTT for fiscal years beginning on or after April 1, 2026.
Q&As
The NTA also released revised editions of existing Q&As and a new set of Q&As reflecting the 2025 and 2026 tax reforms. Key updates include:
- Additional guidance on the "once out, always out" approach for the transitional CbC reporting safe harbor, including clarification that certain jurisdictions without taxing rights over constituent entities are not subject to that approach
- Confirmation that similar treatment applies to the transitional CbC reporting safe harbor for an intermediate parent entity located in another jurisdiction that implements the IIR before Japan
- A new section addressing the side-by-side (SbS) safe harbor for fiscal years beginning on or after January 1, 2026
- Revisions reflecting the one-year extension of the transitional CbC reporting safe harbor period under the 2026 tax reform
- New explanatory sections and Q&As concerning the Japanese UTPR and Japanese QDMTT, which apply to fiscal years beginning on or after April 1, 2026
Read an August 2026 report prepared by the KPMG member firm in Japan