Japan's Corporation Tax Act, Article 2, item 12-19, lists three types of permanent establishment. The first is a place that serves as a base of business, such as a branch or factory that a foreign corporation has in Japan, as specified by cabinet order. The second is a place in Japan where construction or installation work is carried out, for example. The third is a person in Japan with authority to conclude contracts for the foreign corporation, for example. Where a tax treaty provides otherwise, the treaty's definition is the standard for foreign corporations to which the treaty applies.
When a foreign corporation does business in Japan through a permanent establishment, the income attributable to it is determined as if the permanent establishment were a business operating independently of the foreign corporation. Facts such as transfers of assets or provision of services between the permanent establishment and the head office (internal transactions) are taken into account as if they were transactions between independent businesses.