Israel's Transfer Pricing Amendment Proposals

Published date24 February 2021
Subject MatterTax, Transfer Pricing, Tax Authorities
Law FirmPearl Cohen Zedek Latzer Baratz
AuthorMrs Henriette Fuchs

The Israeli Ministry of Finance has published proposed significant amendments to the transfer pricing chapters of Israel's legislation for public consultation. Henriette Fuchs, Partner at Pearl Cohen Zedek Latzer Baratz looks at the detail of the proposed measures and analyzes what the changes mean for multinational enterprises operating in Israel.

Whilst Israel was among the early adopters of the Common Reporting Standard in 2018, the Third Phase Peer Review of the Organization for Economic Co-operation and Development (OECD) Inclusive Framework 2020, published on October 17, 2020, shows that at the end of 2019 Israel was still lagging behind with the implementation of rules for country-by-country (CbC) intergroup pricing reporting and the necessary legislative checks and balances for proper future international exchange of the CbC information eventually received. In August 2018, the OECD's mutual agreement procedure (MAP) minimum standard peer review had already recommended that Israel improve and expand the functionality of the rules for efficient and effective resolve of bilateral tax disputes as required per BEPS Action 14 MAP commitments.

Tax professionals are now following, with a mixture of interest and concern, how the proposed (the proposals may be found here and here) attribution of the burden of proof to the taxpayer in transfer pricing matters and the implementation of exchange of CbC data, may impact tax certainty for multinational enterprises (MNEs) operating in Israel, especially in the absence of a sufficient and public Israeli MAP venue in accordance with OECD standards.

The OECD's BEPS Transfer Pricing and Israel's Pending Adjustments

Today, the transfer pricing sections of Israel's Income Tax Ordinance (ITO) and the accompanying regulations deal only with local requirements (the Local File) for the Israeli taxpayer to report its transactions with related foreign parties. The OECD's BEPS Action 13 instructs countries to require also a Master File and a CbC report in addition to the Local File requirements.

The Master File ought to contain quite extensive standardized information regarding all members of the multinational group and must be filed by an Ultimate Parent Entity (UPE) of an MNE with a revenue of at least 750 million euros ($876 million, approximately 3 billion Israeli shekels). It would have to contain information relating to global allocation of income of the multinational group, indicators for the location of economic...

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