October 21, 2022
Israel publishes new TP regulations following adoption of BEPS Action 13 principles in domestic legislation
- Israel has enacted legislation to align its transfer pricing (TP) rules with Base Erosion and Profit Shifting (BEPS) Action 13 requirements (Local File, Master File, and Country-by-Country Reporting).
- Now new TP regulations have been published for the implementation of the new TP rules.
- Multinational enterprises should carefully review the implementation of the new TP rules and the new regulations, as they may be applicable to the filing of Israeli fiscal year (FY) 2021 tax returns.
On 22 September 2022, an amendment to the Israeli TP regulations was published following the adoption of the BEPS Action 13 principles in domestic legislation. For background, see EY Global Tax Alert, Israel adopts BEPS Action 13 principles, dated 15 July 2022.
The new regulations set an expanded reporting obligation in accordance with Chapter IV of the updated Organisation for Economic Co-operation and Development Transfer Pricing Guidelines from January 2022. The following are the key changes to the Israeli TP documentation requirements starting FY2022:
- Requirement for filing a TP report has been reduced to 30 days from demand (compared to 60 days previously).
- Israeli taxpayers that are members in a multinational group (MNE Group).whose revenue exceeded ILS150m (approx. US$42.5m) in the preceding year, will be required to prepare and file a Master File (within the 30 days framework mentioned above)
- Enhanced disclosure requirements regarding intercompany transactions as part of the annual tax return. This will include the identification of the ultimate parent entity (UPE) of the MNE Group that the Israeli taxpayer is a member of, the consolidated revenue of the MNE Group and information on the reporting obligations of the said UPE.
- The new regulations also include rules on Country-by-country reporting, especially in relation to an Israeli UPE in an MNE Group whose revenue exceeds ILS3.4b (approx. US$965m).
Most of the new regulations will now apply to FY2022, which requires substantial preparation, however part of the regulations (especially those which apply to an Israeli UPE which heads an MNE Group with revenue of more than ILS3.4b), are applicable to FY2021.
For additional information with respect to this Alert, please contact the following:
EY Israel, Tel Aviv
Ernst & Young LLP, Israel Tax Desk, New York