LEGAL UPDATE 36 / 2026
First edition: 8 October 2026 | Revised and sources reviewed: 22 October 2026
SAKURA Law Office | Managing Partner Kenshiro Michishita
SAKURA Law Office presents Legal Update No. 36 by Managing Partner Kenshiro Michishita, examining the Toriteki Act and supply-chain reform.
On 1 January 2026, Japan’s long-standing Subcontract Act was amended and renamed under Act No. 41 of 2025, promulgated on 23 May 2025. The statute, commonly called the Toriteki Act in Japanese, is rendered in the JFTC’s current English reference translation as the Act on Preventing Delay in Payment to Small and Medium-Sized Entrusted Business Operators in Relation to Manufacturing Consignment (the ‘Act’). The reform places greater emphasis on fair commissioned transactions, cost pass-through and the sustainability of supply chains, rather than unilateral management of a ‘subcontractor’. It neither compels a buyer to accept unlimited price increases nor abolishes contractual freedom. For covered consignments, it strengthens rules against transferring unreasonable burdens to the counterparty at the ordering, negotiation, performance and payment stages. [1] [3] [25]
The main changes concern unilateral price determination without the requisite consultation, payment by promissory notes, electronic claims and collective settlement arrangements that cannot provide full cash payment by the due date, supplemental employee-count thresholds and the addition of specified transport consignments. Disclosure of order particulars and maintenance of transaction records are now organised around Articles 4 and 7. Unless purchase orders, standard terms, inspection procedures, enterprise resource planning systems, accounts payable and supplier master data are brought into alignment, routine processing can generate violations even where the legal department understands the reform. [1] [5] [11]
Enforcement during 2026 has made those risks concrete. On 29 September, the JFTC announced a recommendation concerning delayed payment, promissory notes and electronic monetary claims in manufacturing and specified transport transactions. An administrative recommendation is not a criminal conviction, but it shows which features of payment practice attract regulatory concern. In June, a separate Payment Notification under the Antimonopoly Act was adopted, with effect from 1 April 2027, to address defined relationships including some outside the Act’s size-based scope. Correcting only the transactions already captured by the Toriteki Act may therefore leave a business unprepared for the next change. [13] [18] [19]
This Update follows the commercial sequence rather than presenting a catalogue of prohibitions: classify the transaction, specify the order, discuss cost changes meaningfully, redesign settlement and deductions, and control the wider outsourcing structure across logistics, IT and intellectual property. It distinguishes the current Act, the Antimonopoly Act, the Freelance Act, administrative guidance and the forthcoming Payment Notification before considering what each requires of contracts and internal controls.
Executive Summary
The amended Act applies to covered orders placed from 1 January 2026. Coverage combines the statutory category—manufacturing, repair, creation of information products, service provision or specified transport—with the parties’ capital or regularly employed worker counts. Employee thresholds operate where the capital tests do not apply; the relevant dividing line is 300 workers for one group of activities and 100 for the other. Capital-only screening, or automatic exclusions based on group membership, an overseas participant or an intermediary, can therefore be misleading. [1] [2] [5] [10] [11]
A central issue is the integrity of price formation. Where costs or other circumstances have changed, unilateral price determination after refusal of requested consultation, or failure to provide necessary explanation or information on matters requested in that consultation, can breach Article 5(2)(iv) if it unjustly harms the entrusted operator’s interests. This does not give the supplier an automatic right to its full requested increase. The parties should examine input, energy, labour and other relevant changes and retain a traceable record from the request and supporting evidence through discussion, internal approval and response. [1] [5] [10]
Article 4 disclosure at the time of ordering, Article 7 records as the transaction progresses, and payment within the shortest practicable period not exceeding 60 days from receipt or service must function together. The records are retained for two years after all required entries have been completed. Promissory-note payment is prohibited for covered post-commencement orders; other instruments must enable receipt of the full amount in money by the prescribed due date. Bank-fee deductions, disguised reductions following abolition of notes, unjustified free tooling storage and uncompensated extra work require coordinated review by finance, logistics and procurement. [1] [6] [7] [8] [11]
The Payment Notification is adopted but not yet effective as of 22 October 2026; it takes effect on 1 April 2027. Its scope and exceptions must not be reduced to an unconditional 60-day rule for all commercial payments. The statutory category of manufacturing and related consignments, the parties’ relative transactional position and the presence of a justifiable reason matter. Companies need a system connecting classification, consultation, disclosure, records, settlement, remediation and management reporting, not merely a new statute name in an old contract. [18] [19] [20]
1. From the Subcontract Act to the Toriteki Act: understanding the reform through the transaction lifecycle
The Toriteki Act is a special statute aimed at preventing unfair treatment associated with a commissioning party’s transactional and informational advantages. Act No. 41 of 2025 amended both the former Subcontract Act and the related SME promotion legislation, with effect from 1 January 2026. The Act seeks fairness in commissioned transactions and protection of smaller entrusted businesses, with particular emphasis on negotiation, payment and logistics. The new terminology of ‘entrusting business operator’ and ‘small and medium-sized entrusted business operator’ reflects the policy shift. Legal obligations nevertheless depend on the statutory activity, size criteria and conduct, not on the impression conveyed by those labels. [1] [3] [4]
The temporal boundary is easily misunderstood. The JFTC identifies covered orders placed on or after 1 January 2026 as subject to the amended prohibitions. Paying in 2026 for a commission placed in the previous year does not, by that fact alone, retrospectively subject the original order to the new prohibition of promissory-note payment. Conversely, a master agreement executed in 2025 does not exempt individual orders placed in 2026. Contract date, order date, receipt of deliverables, provision of services and settlement date should therefore remain distinct fields in commercial systems. [11]
Nor does the amended law regulate every transaction with an SME. A statutory consignment category and the relevant size relationship must both be present; repeated sales or unequal bargaining power alone do not establish coverage. Transactions outside the Act can still engage the Antimonopoly Act’s abuse-of-superior-bargaining-position rules, the Freelance Act and other applicable law. The labour-cost pass-through guidance is a relevant administrative reference, not a separate statute. Procurement review should therefore identify both whether the Act applies and which legal risks remain if it does not. [5] [12] [23]
For management, the reform affects more than purchasing prices. It can alter margins, working capital, continuity of supply, supplier attrition and the transparency of group procurement. A nominal cost saving may become a supply failure if it prevents a contractor from maintaining quality, wages or equipment. The purchaser’s legal function should therefore work with management, procurement and finance to design defensible price formation and payment terms that sustain supply, rather than confining its role to defensive wording changes.
2. Coverage: capital, employee thresholds and specified transport consignments
Classification begins with the activity. The five categories are manufacturing, repair, creation of information products, provision of services and specified transport consignments. For manufacturing, repair, specified transport, program creation and designated services such as transport, warehousing and information processing, the capital tests broadly pair a corporate buyer with capital above JPY 300 million and a corporate supplier at or below that amount, or a buyer above JPY 10 million but not above JPY 300 million and a supplier at or below JPY 10 million. For other information-product and service consignments, the upper dividing line is JPY 50 million: a buyer above that amount and a supplier at or below it, or a buyer above JPY 10 million but not above JPY 50 million and a supplier at or below JPY 10 million. Individual contractors are also included under the respective statutory tests. The activity must be classified before the figures are applied. [1] [2] [4]
Where the capital criteria do not apply, the supplemental employee test becomes relevant. For the first group of activities, the pairing is a corporate entrusting operator with more than 300 regularly employed workers and an entrusted individual or corporation with 300 or fewer; for the other group it is more than 100 versus 100 or fewer. The buyer cannot elect the more convenient test. Counts are determined for the operator, not automatically aggregated across the group, and include qualifying part-time and casual employees by reference to the statutory concept and wage records. The JFTC does not impose a universal duty to obtain a headcount certificate from every supplier, but reasonable, dated verification is advisable near the thresholds and when relevant facts change. [1] [5] [10] [11]
In logistics, classification of specified transport consignments is particularly important. A manufacturer commissioning delivery of its products to a customer, or a retailer arranging delivery of sold goods, may be covered if the remaining criteria are met. Movement from a factory to the buyer’s own distribution centre is not invariably covered; it matters whether the movement is already part of delivery to an identified trading counterparty. Distance and the use of a courier brand do not determine the answer. Where transport, loading and waiting are commissioned together, the order should make their scope and remuneration ascertainable. [5] [10]
IT and content commissions likewise require examination of the deliverable and the statutory ‘as a business’ test. In particular, outsourcing an internal information system is not covered merely because software is being commissioned: for the self-use category, whether the customer itself carries out creation of the relevant information product as a business must be assessed. A systems department or an abstract capability to create software is not a substitute for that factual inquiry. Program creation, software supplied to customers, design, advertising, film and research deliverables should not be grouped under a generic outsourcing label. [1] [5] [10]
Construction works themselves are excluded from the Act’s service-provision category, but separately commissioned design, drawings, manufacture of materials or transport may be covered. Group companies are not subject to a blanket statutory exemption; the JFTC’s practice does not ordinarily raise issues with certain arrangements substantively equivalent to internal transactions, which is a narrower proposition. Nor does an overseas customer automatically exclude a domestic specified transport consignment. Industry, ownership and contract captions cannot replace activity-specific analysis. [1] [5] [10]
A company should therefore maintain a transaction-classification record bringing together the contract, deliverable, transaction flow, each party’s capital and worker count, receipt or service arrangements and subcontracting. Different commissions to the same supplier—program development, promotional film, transport or tooling—can produce different results. Classification should not be an isolated legal exercise: the ordering team should describe the work, finance and HR information should be obtained where necessary, and uncertain cases should be escalated to legal.
3. Orders, acceptance and payment: integrate Article 4 disclosure, Article 7 records and the 60-day rule
Compliance starts at the individual order. Article 4 requires the prescribed particulars to be disclosed immediately after commissioning in writing or by a permitted electronic method. The work, delivery timing and location, any inspection completion date, price and payment date form the evidential basis for assessing later changes or deductions. A master agreement stating that details will be discussed later does not replace the required order-specific disclosure. Whether using a document, email or procurement platform, the business needs a reproducible record of the terms and their changes. [1] [6] [9]
Electronic disclosure no longer depends on the counterparty’s prior consent as a general condition under the former framework. However, Article 4(2) requires written particulars to be supplied without delay if the smaller entrusted operator requests them after electronic disclosure, subject to the exceptions specified in the rules. Digitisation therefore requires not only reliable transmission, access and storage, but also a channel for receiving and acting on such requests. [1] [6]
Common conditions may be disclosed in advance and linked to individual orders in the manner permitted by the rules. Where there is a justifiable reason why a required particular cannot yet be fixed, the initial disclosure must identify the undetermined matter, the reason and the expected date of determination; the final particular must then be supplied promptly once fixed. An objectively determinable pricing formula may be used where fixing an amount is unavoidably difficult, with prompt notice of the resulting amount when determined. None of these mechanisms permits the buyer to start work and select a convenient price after delivery at its own discretion. That practice can raise disclosure, unilateral-price-setting and unjustifiably-low-price concerns together. [5] [6] [10]
Article 7 and the record-keeping rules require the work, receipt date, inspection outcome, changes and rework and their reasons, price and payment status to be recorded as the relevant facts arise. Rule 3 requires retention for two years from the day on which all required entries have been completed, not automatically from order placement or initial receipt. Electronic retention is subject to the prescribed safeguards concerning amendment or deletion history, readable display and printing, and retrieval. The objective is to reconstruct the agreement and actual performance in an investigation. Change tickets, approval logs, revised estimates and ERP acceptance data should therefore be connected to the legal record; retaining only the final invoice is insufficient. [1] [7] [9]
Article 3 requires a payment date within the shortest practicable period not exceeding 60 days from receipt of the goods or provision of the relevant services, irrespective of inspection. An invoice or internal acceptance delay cannot ordinarily move the starting point. Nor does the 60-day limit excuse failure to pay by an earlier payment date validly fixed between the parties: Article 5(1)(ii) addresses non-payment after that due date. Finance should test the actual date fields and payment cycles rather than assuming that an ERP description such as ‘net 60’ demonstrates compliance. [1] [9] [10]
Interest requires a separate distinction. Under Article 6(1), failure to pay by the due date gives rise to the prescribed interest on the unpaid amount for the period beginning on the day on which 60 days have elapsed from receipt or service and ending on payment. Under Article 6(2), an unjustified reduction attracts interest from the later of the reduction date and the day on which 60 days have elapsed from receipt or service, through payment of the deducted amount. The prescribed rate is 14.6% per annum in both cases. The start of a payment-delay violation and the statutory interest period are not necessarily identical; remediation should examine interest as well as principal and refunds. [1] [4] [8]
Inspection, warranty, rectification, set-off and return provisions must not circumvent the Act. Rejection without supplier fault, unilateral returns, unconditional post-order deductions or transfer of the buyer’s rework costs are not made lawful merely by a standard clause or nominal consent. Clear specifications and acceptance criteria should be settled in advance, while genuine defects or non-conformities should be investigated with an evidential record of cause and cost allocation. This supports both dispute prevention and lawful payment management. [1] [5] [26]
4. Meaningful price consultation: negotiation is required, automatic acceptance is not
An important change is that scrutiny now extends from the price itself to the process producing it. Article 5(2)(iv), read with the chapeau of Article 5(2), addresses changes in the cost of performance or other circumstances, a supplier request for consultation, refusal to consult or failure to provide necessary explanation or information on matters requested, and unilateral determination that unjustly harms the smaller operator’s interests. The existing prohibition of unjustifiably low consideration focuses on an abnormally low price compared with what is ordinarily paid for identical or similar performance. The new provision separately examines the reality of consultation. A buyer should not assume that its own view that a price is reasonable answers every question about how that price was imposed. [1] [5] [10]
This distinction prevents two opposite mistakes. One is to respond to every request with ‘there is no budget’ or ‘these are group-wide prices’ and treat that response as consultation. The other is to assume that the amended law compels acceptance of every proposed increase. It does not. The JFTC’s Q&A distinguishes genuine discussion supported by reasonable materials from refusal to engage. Rejection of some or all of a request may be permissible depending on the actual negotiation, the explanation provided and the grounds for the price. A contemporaneous record should show the commercial reasoning, not merely that a meeting occurred. [10]
For labour costs, the Cabinet Secretariat and JFTC Guidelines on Price Negotiation for Appropriate Pass-Through of Labour Costs, revised on 1 January 2026, are an important reference. They call for leadership involvement, opportunities to discuss costs rather than simply waiting for requests, appropriate reliance on public wage indicators, reasoned responses and retained negotiation records. They are administrative guidance relevant to preventing and assessing risk under the Act and the Antimonopoly Act, not a new penal statute imposing an independent set of offences. That legal status should be preserved when the guidance is translated into internal purchasing procedures. [12]
Negotiation materials can include changes in raw materials, energy, labour, exchange rates, transport, equipment, production processes and demand. A purchaser that insists on highly confidential cost breakdowns before discussing wage movements already explainable through public data may obstruct meaningful consultation. Suppliers should likewise identify the basis, timing, affected items and magnitude of a request. Whether suppliers can pass justified costs on to their own lower-tier contractors is also relevant to sustainable price formation across the chain. [10] [12]
Calling a process a competitive tender does not determine legality. The JFTC’s Q&A places importance on the actual procedure, including whether bidders receive the information necessary to assess the transaction and can freely decide their price and whether to bid. Obtaining competing quotations or pointing to a formal ability to decline is not a universal justification for refusal of consultation or inadequate information. [10]
Legal should design a process capable of explanation, not a file manufactured to say that consultation took place. Records should identify the request date, materials, cost items considered, internal reasons for accepting or rejecting the proposal, any counterproposal and the timing of the response. Material changes and exceptional freezes should have defined approval and escalation routes. Retaliatory treatment merely because a supplier sought price discussions should be avoided; the statutory retaliation provision concerning reports to authorities is a distinct rule and should not be conflated with this broader compliance concern. Transparent negotiation improves both legal defensibility and decisions about long-term sourcing and supplier continuity. [1] [12]
5. Promissory notes, electronic claims and deductions: compliance extends into payment systems
For covered orders placed from 1 January 2026, payment by delivery of a promissory note is prohibited. Electronic monetary claims and collective settlement arrangements must also be examined: use of an instrument that makes it difficult to receive money equal to the full consideration by the prescribed payment date is treated as delayed payment. Theoretical cash convertibility is not equivalent to receiving the entire sum without bearing discount costs. A payment method does not become compliant merely because the paper instrument has been digitised. [1] [10] [11]
Bank-transfer fees cannot be treated as an unchanged historical convention. Deducting them from the agreed payment on the basis that the supplier previously consented conflicts with the prohibition of reductions. The JFTC also cautions against deducting a financing ‘discount’ when switching from notes to cash, or unilaterally cutting the unit price to offset the buyer’s assumption of transfer fees: depending on the facts, reduction, unjustifiably low pricing or unilateral determination without consultation can arise. Changing a payment-method code is insufficient unless pricing and accounting treatment are reviewed together. [10] [11]
The 29 September 2026 recommendation concerning Fuji Seisakujo provides a concrete example. The published record identifies 44 manufacturing suppliers and two transport suppliers, with non-payment within 60 days affecting one recipient, notes delivered to five recipients between February and May, and electronic monetary claims used for 40 recipients where full cash conversion by the due date was difficult. The recommendation sought payment of delayed consideration and relevant interest to 46 recipients. The Article 10(1) recommendation concerned Article 5(1)(ii) delayed payment and required corrective action including relevant payment and interest. It is an administrative measure, not a determination of every civil issue or a criminal conviction. Its practical lesson is that legacy terms can survive supplier-by-supplier even after a company announces abolition of paper notes. [13]
A separate issue is the control of reductions, rejection, returns, forced purchases, rework and storage of tooling or jigs. Requiring a supplier to keep obsolete tooling free of charge for a prolonged period can raise the prohibition of unjustly obtaining economic benefits. Turning specifically to deductions, the JFTC’s 9 September 2026 recommendation concerning Toridoll Holdings addressed uniform deductions of 1.1% described as ‘system usage fees’ in food-manufacturing commissions involving 37 suppliers through wholesalers. The authority distinguished pre-2026 orders governed by the former Act from orders governed by the Toriteki Act. Renaming a deduction as a cooperation payment, system fee or quality adjustment does not alter its substance if the agreed fee is reduced without supplier fault. [5] [14] [26]
The concentrated advertising-industry investigation published on 29 June 2026 reinforces the need to test operations rather than labels. The JFTC reported 71 instances of administrative guidance following review of matters including disclosure of orders, changes to creative work, notes and electronic claims, and transfer fees. The investigation included transactions spanning the transition between the former and amended regimes. The figure is not a count of criminal cases or recommendations under the new Act. Where creative teams, procurement and finance maintain separate records, reconciliation is especially important. [15]
A business should reconcile purchase-order amounts with settlement at supplier level and identify exceptions involving cash-conversion dates, fees, set-offs, deductions, due dates and receipt dates. An otherwise sound purchasing process can be undermined by an accounts-payable system still configured for month-end closing and payment at the end of the second following month, which can exceed 60 days depending on receipt. Treasury analysis, supplier communication, revised master terms and subsequent testing of actual receipts need to proceed together. Compliance is not complete when the written payment terms alone have been changed.
6. Logistics, IT, intellectual property and freelancers: classify the substance of outsourcing
The reform is not confined to manufacturing. Specified transport consignments can include a shipper’s commissioning of delivery of relevant goods to its trading counterparty in connection with sale, manufacture or repair, where the statutory conditions are met. This narrows the gap between shipper-to-carrier arrangements and subcontracting further down the chain. Warehousing activities, waiting and ancillary handling are not invariably the same legal performance as transport. Contracts should identify the journey, ancillary operations, actors, instructions from consignors and consignees, and compensation, rather than routinely leaving carriers to absorb unloading and prolonged waiting without payment. [1] [5] [10]
Separately, the JFTC announced revision of the Logistics Special Designation on 17 June 2026; the amending notification is dated 18 June and takes effect on 1 April 2027. This Antimonopoly Act instrument is distinct from specified transport consignments already covered by the Toriteki Act since January 2026. The revised designation also addresses defined conduct by specified consignees that unjustly harms specified consignors; it should not be described as an identical direct regulation of every party involved in delivery. Contracts should allocate responsibility for waiting and extra work that the carrier cannot resolve alone, while the applicable actors, prohibited conduct and effective dates are assessed under the relevant instrument. [20] [21]
In software, design, games, advertising, film and other information-product commissions, ownership of copyright and know-how cannot be separated from transactional fairness. Extra revisions without a defined scope, free acquisition of rights in unused proposals or uncompensated redevelopment after a specification change can raise unjustified alteration, rework or economic-benefit concerns. Even where an assignment or licence is validly agreed as a matter of private law, its scope, consideration and relationship to the commissioned deliverable require separate review under the transaction rules. [5] [16] [17]
The JFTC, SMEA and Japan Patent Office established the IP Transaction Guidelines on 24 June 2026, and on 1 October the JFTC published final revisions to operational interpretations under the Toriteki Act and Freelance Act. These developments reinforce the need to identify intellectual property, know-how and data as part of the deliverable, and to specify which rights are acquired for which consideration in the order, negotiations and records. The guidelines are not themselves a new penal statute, but a formal assignment clause alone does not demonstrate that the transaction was fair. [16] [17]
Ordinary legal or accounting services purchased for internal use do not generally constitute the subcontracting of services supplied by the customer to others under the Act. Construction works themselves are subject to a separate statutory framework. Conversely, calling a mixed IT, creative, engineering and logistics arrangement a ‘service agreement’ does not answer the classification question. Engagements with individual contractors can also fall within the Freelance Act. Official guidance describes priority for that Act where the same conduct infringes both regimes, but this is an approach to overlapping enforcement, not permission to disregard the Toriteki Act’s separate scope and obligations. Each statute’s requirements must still be examined. [1] [5] [23] [24]
Interposed trading companies, group companies and purchasing agents require the same functional analysis. Specifications, pricing, order approval and actual payment should be mapped alongside the contracts. The JFTC’s Q&A distinguishes administrative processing by an intermediary from substantive involvement in commissioning, and the original purchaser may remain the regulated entrusting operator. Obscuring negotiation or payment responsibility across several documents makes a later investigation or dispute harder to explain. Overseas headquarters setting terms, a Japanese subsidiary placing orders, and domestic delivery for foreign customers all require transaction-specific analysis rather than formal reliance on group charts. [10]
7. The 2027 Payment Notification: integrating procurement, finance and legal governance
The Payment Notification is a separate designation of specific unfair trade practices under the Antimonopoly Act, not a further amendment already operative under the Toriteki Act. JFTC Notification No. 3 of 18 June 2026 takes effect on 1 April 2027. Its activity-based scope follows manufacturing and related consignments as defined in Article 2(6) of the Toriteki Act, without importing that Act’s capital and employee thresholds. It excludes the State and specified public bodies and excludes a supplier whose transactional position is recognised as not inferior to that of the customer. The absence of a size threshold does not make the designation a rule for every sale or payment between businesses. [18] [19]
For relationships within its scope, the designation prohibits failure to pay after 60 days from receipt or service, except where there is a justifiable reason. The operational guidelines address matters such as supplier fault and a genuine agreement before commissioning founded on a rational transactional reason, or sufficiently advance consent accompanied by the customer’s assumption of the loss that would ordinarily arise from delay. A formal signature or reference to industry custom is not enough. The assessment considers the nature of the goods or services, the real need for the period, the parties’ actual negotiations and the treatment of the supplier’s financial burden. Finance should identify which arrangements require correction rather than simply placing a blanket exception code on every contract bearing consent. [18] [19]
It is essential not to import the Payment Notification’s exceptions into transactions covered by the Toriteki Act. The JFTC’s operational approach ordinarily gives priority to the Act where the same conduct infringes both instruments; its payment deadline cannot generally be extended by private agreement. A purchaser should separately determine its present obligations under the Act and the scope and exceptions of the 2027 designation, while considering a common operational policy of the shortest practicable payment period. The revised Logistics Special Designation commences on the same date but regulates different relationships and conduct. [1] [18] [19] [20]
Implementation should start with controlled transaction classifications in the vendor master, mandatory order particulars and a traceable channel for price-review requests. Procurement needs defined negotiating authority, reasons for decisions and escalation rules; finance should test starting dates, actual settlements, fees and cash-conversion conditions; legal should oversee contracts, exceptions and regulatory engagement. Demanding unlimited supplier data can damage the relationship without improving classification. Verification should be proportionate to size and transaction type, with a record of remedial instructions and justified exceptions.
When concerns arise, preserve orders, receipt and payment evidence and identify the relevant suppliers and periods before quantifying unpaid or deducted sums, interest, refunds and corrective changes. Training and recurrence prevention should follow the actual cause. The FY2025 enforcement report published in June 2026 covers the period under the former Act as well as the period after commencement of the Toriteki Act; its figures are not exclusively post-reform violations. An administrative recommendation is not a civil judgment or criminal conviction. Communications to suppliers, authorities and management should reflect those distinctions and a consistent factual record. [22]
The ultimate question is whether fair dealing has become a durable part of management. Boards need appropriately focused reporting on price-change requests, overdue settlements, out-of-scope work, uncompensated tooling, supplier exits, authority inquiries and readiness for the 2027 rules. Suppliers likewise benefit from clear orders, consultation records, evidence of cost increases and reliable receivables data. The reform should make pricing and cash flow more transparent, allowing enterprise value and the continuity of trading partners to be considered together. It is not merely an exercise in adding a renamed statute to a contract.
Frequently Asked Questions
Q1. Which transactions are covered, and from when?
The amended regime applies to covered orders placed on or after 1 January 2026 in the manufacturing, repair, information-product, service and specified transport categories, subject to the statutory size relationship. Continuing under a 2025 master agreement does not exempt individual orders placed from 2026. [1] [11]
Q2. May a buyer choose between the capital and employee tests?
No. The employee test operates where the capital test does not apply. Depending on the category, it pairs a buyer with more than 300 workers and a supplier with 300 or fewer, or more than 100 with 100 or fewer. The relevant count is determined for each operator at the time of the commission; a threshold cannot be chosen simply because it produces a more convenient result. [1] [5] [10]
Q3. Must a headcount certificate be obtained for every order?
There is no universal statutory obligation to obtain a certificate or conduct a particular verification for each order. Where a party is near a threshold or its workforce changes, reasonable verification through a recordable method and an updated classification are useful compliance measures. [10] [11]
Q4. Must the buyer accept the supplier’s requested increase in full?
No. Article 5(2)(iv) concerns unilateral determination after refusal of requested consultation, or inadequate necessary explanation or information, in the prescribed circumstances and to the supplier’s unjust detriment. Genuine consultation and a reasoned explanation can permit rejection of all or part of a requested increase, depending on the facts. [1] [5] [10]
Q5. Can order particulars be disclosed by email or through a procurement platform?
Yes, a prescribed electronic method can be used. Required particulars must be supplied immediately after commissioning, with appropriate links to common terms and subsequent completion of legitimately undetermined matters. Where the recipient requests a written document after electronic disclosure, Article 4(2) generally requires it without delay, subject to the specified regulatory exceptions. [1] [6]
Q6. Does the payment period run from inspection or receipt of the invoice?
As a rule it runs from receipt of the goods or provision of the services, not internal inspection or invoice processing. An earlier payment date validly fixed by the parties must also be observed. The 60-day maximum is not permission to disregard that earlier due date. [1] [9] [10]
Q7. May covered consideration still be paid by notes or electronic claims?
For covered orders placed from 1 January 2026, promissory-note payment is prohibited. Electronic monetary claims and collective settlement arrangements are also problematic where the supplier cannot receive the full amount in money by the prescribed due date. The economic cash-conversion terms, rather than the name of the instrument, are decisive. [1] [10] [11]
Q8. Does supplier consent permit deduction of bank-transfer fees?
For a covered order, a prior agreement does not justify deducting transfer fees from the agreed consideration without supplier fault. A unilateral price cut to offset the buyer’s assumption of the fee also requires separate analysis. This regulatory prohibition should be distinguished from the private-law validity and consequences of a particular contract. [10] [11]
Q9. Is transport from a factory to the buyer’s own distribution centre always covered?
Not invariably. The actual purpose and destination matter, including whether the movement forms part of delivery to an identified customer or is an inter-site transfer before a destination has been determined. Scope, loading, waiting and their cost allocation should also be made clear. [5] [10]
Q10. How do the Toriteki Act and Freelance Act interact?
Both sets of conditions can be satisfied. Official guidance describes priority for the Freelance Act in the administrative treatment of conduct infringing both regimes, but that does not dispense with separate Toriteki Act classification. The activity, counterparty’s business status and requirements of each statute must be examined. [23] [24]
Q11. Will every business payment become unconditionally subject to a 60-day rule in 2027?
No. The Payment Notification is a separate Antimonopoly Act designation effective 1 April 2027. Its consignment categories, excluded entities, relative transactional position and justifiable-reason exception must be considered. Those exceptions cannot generally be used to extend the payment deadline for transactions already governed by the Toriteki Act. [18] [19]
Q12. What should a business preserve and correct when concerns arise?
Preserve orders, receipt and payment data, contracts, disclosed terms, consultation and change records, and identify the law, counterparties, period and amounts involved. Assess unpaid and deducted sums and the distinct interest rules in Article 6, then coordinate payment or refund, contractual and system changes, authority engagement, training and management reporting. Article 7 records must be kept for two years after completion of all required entries. [1] [7] [8]
About the Legal Update Series
SAKURA Law Office’s Managing Partner Kenshiro Michishita publishes the Legal Update series to connect primary legal sources with practical questions in corporate law, M&A, cross-border transactions, financial regulation, IT and AI, crisis management and disputes. The series examines not only what a legal framework says, but how it affects management decisions, contracts, governance and actual operations. No. 36 brings together procurement, finance, legal and management perspectives, from classification of commissioned transactions through negotiation, settlement, investigations and the forthcoming 2027 payment rules.
Information about the author and practice areas is available on the professional profile of Managing Partner Kenshiro Michishita and the SAKURA Law Office website. Author profile / Firm website
How SAKURA Law Office Can Assist
SAKURA Law Office accepts consultations on classification under the Toriteki Act, capital and worker-count tests, master supply agreements, purchase orders and purchasing terms, price and labour-cost negotiation procedures and records, payment deadlines, promissory notes, electronic claims, collective settlement arrangements, transfer fees, deductions, tooling storage and out-of-scope work.
Projects combining systems development, advertising, film, design, manufacturing, construction-related activities and logistics require coordinated analysis of the actual work, contractual responsibility, intellectual property, changes, inspection and payment, together with the Freelance Act and Antimonopoly Act. Centralised group procurement, purchases through trading companies and commissions involving overseas headquarters should similarly be assessed by identifying the actual commissioning entity and transaction flow.
Advice may also concern inquiries from the JFTC or SMEA, investigation and remediation of suspected violations, supplier-side negotiations about payment and price, and prevention of contractual disputes. Preparation for the April 2027 Payment Notification should connect the legal requirements of accounting and procurement systems with revised contracts and internal rules, rather than treating drafting as the endpoint of compliance.
Contact
SAKURA Law Office
Ark Hills South Tower 4F, 1-4-5 Roppongi,
Minato-ku, Tokyo 106-0032, Japan
Managing Partner Kenshiro Michishita
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Principal References
The numbered citations in the text and FAQ, and the reference titles below, link to the corresponding official sources. Japanese statutory text, administrative interpretations and English reference translations have different legal status. The November 2025 textbook is used for the statutory text and related explanations; the October 2026 interpretive revisions are addressed separately in references 5 and 17.
2. JFTC, Official legislation and rules, including the implementing Cabinet Order (Japanese)
3. JFTC, Passage of the 2025 amendments (16 May 2025; Japanese)
6. JFTC, Rules on disclosure under Article 4 (Japanese)
7. JFTC, Rules on creating and retaining records under Article 7 (Japanese)
8. JFTC, Rule prescribing the interest rate under Article 6(1) and (2) (Japanese)
9. JFTC, Duties of entrusting business operators (Japanese)
10. JFTC, Toriteki Act questions and answers (Japanese)
11. JFTC, Matters for businesses to note on commencement of the Toriteki Act (Japanese)
13. JFTC and SMEA, Recommendation concerning Fuji Seisakujo Co., Ltd. (29 September 2026; Japanese)
14. JFTC, Recommendation concerning Toridoll Holdings Corporation (9 September 2026; Japanese)
19. JFTC, Operational Guidelines for the Payment Notification (18 June 2026; Japanese)
23. JFTC, Freelance Act official information portal (Japanese)
26. JFTC, Prohibited conduct by entrusting business operators (Japanese)
Disclaimer
This Update provides general legal and practical information based on the Act, related rules, operational guidelines and official primary materials reviewed through 22 October 2026. It is not a legal opinion or representation in an individual matter. Application depends on the activity, the parties’ capital and worker counts, order date, discussions, contract, payment method and other facts.
The Toriteki Act, Antimonopoly Act, Freelance Act, construction legislation and other laws have different and sometimes overlapping scopes. Administrative guidelines and Q&A are not legislation; recommendations and guidance, civil liability and criminal findings are distinct. Practical recommendations in this article are analytical proposals, not a representation that every measure is mandatory in every case. English translations of Japanese law are for reference; the operative Japanese statutory text governs.
The Payment Notification and revised Logistics Special Designation take effect on 1 April 2027 and are not yet operative as of this Update’s review date. Discussion of published enforcement matters is limited to the official record and is not a finding that all similar transactions are unlawful. Specific contractual changes, remediation and authority engagement require confirmation of current law, official materials and the relevant facts.