Israel levied new Transfer Pricing reporting obligations

In light of the OECD policies and publications, the Israeli legislator enacted Amendment no. 261 of the Israeli Tax Ordinance, as well as complement regulations (hereinafter: “the Amendment”), which determines new transfer pricing reporting obligations, including inter alia:

Local File – the Amendment extents the general reporting obligation in transfer pricing according to which any Israeli taxpayer which engaged in an “International Transaction” is required to fulfill the tax assessor’s information request, within 30 days upon the tax assessor’s demand.

In that framework, the taxpayer may be required to submit a “Local File”, including a transfer pricing analysis, a description of the organizational structure, and information regarding competition, intangibles, other transactions, etc.

Whereas this reportion obligation is not applied on one-time transaction, it should be noted that as a result of the Amendment – the Arm’s Length Principle would be applied also on one-time transactions.

Master File – any entity member of a “Multinational Group” (2 entities or more) with accumulated annual revenue of NIS 150 million is required to submit a “Master File”, including organizational chart, description of the group’s activities/agreements/employees in each jurisdiction, and information about intangibles, financing, etc.

Country-by-Country report – Furthermore, an Israeli taxpayer which is “Ultimate Parent Company” (“UPE”), as defined in the Amendment, is required to fill online a “Country-by-Country” report, provided that the UPE’s Multinational Group’s revenue exceeds NIS 3.4 billion. A UPE is also required to fill a specific form attached to its annual tax report. Please note that the form of the Country-by-Country report has not been published yet by the Israel Tax Authority.

It should be noted that the reporting obligations are applied for the tax year 2022 onwards. Following the adoption of these new reporting obligations, the Israel Tax Authority is eligible for receiving these pieces of information from component authorities that also have adopted these requirements. Therefore, we assess that the application of the Amendment, providing the Israel Tax Authority with new information, will extend the focus on transfer pricing issues in Israel.