Japan's Act on Special Measures Concerning Taxation, Article 66-4, sets out how corporation tax is computed when the consideration for a transaction between a company and its foreign related party differs from the arm's length price.
Consider a hypothetical example in which W Co., a Japanese company, pays its foreign subsidiary a consideration of 103 million yen, where the arm's length price is 100 million yen. W Co.'s income is computed 3 million yen lower than it would be at the arm's length price, and the Japanese rule disallows that difference as a deductible expense. If it paid 97 million yen instead, W Co.'s income would be higher, but Article 66-4, paragraph 1 applies only when the consideration received falls short of the arm's length price or the consideration paid exceeds it, so a price in that direction is outside the rule.