On February 11, 2025, the Israeli Tax Authority (ITA) published Income Tax Circular 01/2025 (Circular), which provide guidelines and details regarding the obligations and requirements for multinational enterprises (MNEs) with regard to their submission of country-by-country (CbC) reports.

This Alert outlines the fundamental and general principles of the Circular.

Background

As part of the Organisation for Economic Co-operation and Development's (OECD's) Base erosion and profit shifting (BEPS) initiative, the CbC report generally must be submitted in the country in which the ultimate parent entity (UPE) resides and must be shared with other tax authorities in which the group operates within the framework of automatic information exchange treaties.

In Israel, the CbCR obligation derives from Israeli tax ordinance (Ordinance) Section 85C. The obligation applies to MNEs that have an entity that is a resident of Israel for tax purposes, whose consolidated group turnover, in the year preceding the tax year, exceeds 3.4 billion New Israeli Shekel (NIS3.4b) (approximately US$1b).

According to Ordinance Section 85C, the CbC report shall be submitted no later than 12 months after the end of the UPE's tax year through the Israeli automatic information exchange portal (CbCR Portal).

Circular's key points

The Circular conveys important CbCR requirements, including those highlighted below.

Place where CbC report is filed when UPE is a resident of Israel

As a rule, the CbC report will be filed in the UPE's country of residence (as defined in Ordinance Section 85c); however, the group may appoint a surrogate parent entity for the purpose of filing the report in another country, subject to three cumulative conditions (and with the approval of the ITA):

1. At the time of filling, there is a valid information-exchange treaty between Israel and the country in which the report will be filed.
2. The UPE must notify the ITA, through the CbCR Portal, by the end of the tax year to which the CbC report relates, of a filing in another country.
3. Evidence that a report have been filed in another country must be submitted through the CbCR Portal (up to 15 months from the end of the tax year to which the report relates). Failure to submit such a proof will require the submission of a CbC report in Israel.

Submission obligation for MNEs when UPE is not a resident of Israel

As stated above, the obligation to submit the CbC reporte is imposed on the UPE in its country of incorporation, under the assumption that the other tax authorities will receive the information by way of applying the automatic information-exchange provisions in an applicable treaty.

Therefore, the ITA will consider that the report was submitted insofar as the ITA received the report online from the foreign tax authority, or the report was submitted directly in Israel (for the purpose of distributing it to other tax authorities, or for the purpose of serving locally in Israel only).

Nonetheless, the ITA may require an Israeli taxpayer within the MNE group to file a CbC report in Israel, even if the taxpayer is not defined as a UPE, if one of the following cases occurs:

1. In the UPE's country of residence, there is no obligation to file a CbC report.
2. At the time of submission of the CbC report, there was no information-exchange treaty between Israel and the country in which the CbC report was submitted (and no submission was made in another country that has such a treaty with Israel).
3. There is a systematic malfunction in the UPE's country of residency and the information about this has been conveyed to the local company in Israel.

Notification to ITA when CbC report is submitted in another country

For an Israeli UPE that chooses to submit its CbC report in another country, the group must notify the ITA via the CbCR Portal (an administrator's approval will be received only after meeting all the conditions mentioned above).

Each Israeli taxpayer that is a part of a foreign MNE is obligated to notify the ITA by means of a designated email (in addition to reporting this information in the local entity tax return using Form 1585).

Additional Circular clarifications

The Circular provides specific rules regarding exchange rates that should be used to determine the Group's CbCR threshold.

According to the Circular, an Israeli taxpayer that is part of an MNE group that is obligated to file a CbC report and does not have an income tax number (local tax file) will be required to register for the purpose of reporting Form 1585.

The Circular stipulates that a failure to submit a report, whether in full or in part, is regarded as noncompliance act under Ordinance Section 131. It is essential to understand that accurate reporting on the CbC report has broad implications, including those related to OECD Global Minimum Tax (Pillar Two) framework. Additionally, these reports are increasingly becoming public information for private companies in accordance with the European directive on this matter. (For background, see EY Global Tax Alert, EU Member States adopt public CbCR Directive, dated 28 September 2021.)

Implications

Taxpayers affected by these changes should ask their tax advisors for additional details on the new guidance and help navigating the process and implementation.