Skip to main content

New Compliance Burdens Headed for Israel

17th May 2022

TP in 5 social image tp in israel

One of the benefits of conducting business with related parties in Israel is that you’re not required to submit a master file, local file, or country-by-country report (CBCR)—but that could change very soon. International Tax Review reports that transfer pricing compliance may soon become more burdensome for taxpayers with operations in Israel. How? Currently, Israel requires its own transfer pricing report be submitted with the tax return. Form 1385 specifies information about the volume, types, and the terms of intra-group transactions, and it confirms that all inter-company transactions have been conducted at arm’s length. Taxpayers also have to prepare a contemporaneous transfer pricing study. But now, the Finance Committee wants to incorporate the master file (threshold $45 million) and CBCR (threshold roughly $1.2 million) into regulations for fiscal year 2022. Other news? The tax authorities will be focused on service transactions and transactions involving intangibles, and the IRA will be evaluating these transactions based on DEMPE functions—given that many Israeli companies contribute extensive R&D functions, taxpayers should consider that a warning. Additional and more stringent documentation requirements are challenging enough, but there’s another catch: You may have less time to complete documentation. The tax authority is considering tightening the transfer pricing documentation submission deadline from 60 days to 30 days, which means that preparing contemporaneously is the only way to go.