Transfer pricing in a nutshell: Israel

Article by: Eyal Bar-Zvi (Herzog Fox & Neeman)

Overview

Israel’s transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... regime is regulated under Section 85A (Section 85A) of the Israeli Tax Ordinance (the Ordinance), which came into effect on 29 November 2006. Guidance regarding transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... is provided in several tax circulars issued by the Israel Tax AuthorityTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... (ITA).

The regulations promulgated under Section 85A (the Regulations) adhere to the arm’s-length principle and incorporate the approach taken in the Organisation for Economic Co-operation and DevelopmentThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... (OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve...) Transfer PricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... Guidelines for Multinational EnterprisesWhat are Multinational Enterprises (MNEs)? Multinational Enterprises, commonly referred to as MNEs, are corporations that operate in multiple countries through various subsidiaries, branches, or affiliates. These entities maintain a central management structure while leveraging diverse resources, labour markets, and customer bases across borders. The fundamental aspect that distinguishes MNEs from other corporate forms is their cross-border activity, which can include... and Tax Administrations (the OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... Guidelines) and the approach taken in Section 482 of the US Internal Revenue Code (Section 482) towards determination of the correct analysis methods for examining an international transaction between related parties. It should be noted, however, that certain tax circulars offer a ‘safe-harbour’ mechanism with specific margins.

The scope of transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... regulations in Israel is limited to cross-border transactionsIntra-Group Transactions are interactions between entities within the same multinational enterprise (MNE). Such transactions form the backbone of related-party dealings and are essential in managing global operations and aligning business objectives across jurisdictions. Understanding intra-group transactions is critical in international tax and transfer pricing, as they directly impact a company's tax obligations, profitability, and compliance standing. Tax professionals, accountants, lawyers,... in which a special relationship (as defined below) exists between the parties to the transaction. Transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... issues normally arise in relation to transactions carried out by companies that are part of a multinational group; however, the ITA has recently started to implement the principles of Section 85A unofficially with respect to related-party transactionsIntra-Group Transactions are interactions between entities within the same multinational enterprise (MNE). Such transactions form the backbone of related-party dealings and are essential in managing global operations and aligning business objectives across jurisdictions. Understanding intra-group transactions is critical in international tax and transfer pricing, as they directly impact a company's tax obligations, profitability, and compliance standing. Tax professionals, accountants, lawyers,... within Israel. According to Section 85A and the Regulations, the tax assessmentA tax assessment is a formal determination made by a tax authority to calculate the amount of tax an individual or entity owes. It is a comprehensive evaluation based on financial records, declared income, expenses, deductions, and any applicable tax laws or regulations. Tax assessments may arise from routine self-assessments by taxpayers, or they may be conducted by revenue authorities... officer (AO) may issue an approval that certain one-time transactions are excluded from the scope of the Regulations; however, such approvals are rare.

The term ‘special relationship’ includes the association between an individual (including an entity) and that individual’s relatives, the control of one party to the transaction over the other or the control of one individual over the other parties to the transaction, whether directly or indirectly, individually or jointly with other individuals.

‘Control’ means holding, directly or indirectly, 50 per cent or more of one of the indicators of control. An indicator of control is defined as:

1. the right to profits;
2. the right to appoint directors or the general manager or other similar positions;
3. the right to vote in the general shareholders’ meeting;
4. upon liquidation of the company, the right to a share in the equity after all debts are paid; or
5. the right to determine which party has one of the aforementioned rights.

A relative is a spouse, sibling, parent, grandparent, child, spouse’s child and the spouse of each of these. Nonetheless, the ITA can often perform a qualitative test for the above threshold, and look at a transaction even if the threshold itself is not met.

The Regulations cover various types of transactions, including: services (such as research and development (R&D), manufacturing and marketing); the use or transfer of tangible and intangible goods (i.e., distribution); the use or transfer of intangible assetsIntangible Assets are non-physical assets that have value due to the rights or advantages they confer on a business. Unlike tangible assets like machinery or buildings, intangible assets cannot be seen or touched but often hold significant worth. Common examples include intellectual property (IP) such as patents, trademarks, copyrights, goodwill, and brand recognition. Intangible assets are crucial for driving long-term... (e.g., know-how, patents, trade name or trademark); and financing (e.g., capital notes, guarantees, captive insurance, loans) transactions, which are required to be carried out at arm’s length.

Because of the nature of the Israeli market, the ITA gives special attention to R&D services provided by Israeli subsidiaries and matters relating to intangibles, which may also involve governmental support.

Application of the arm’s-length principle is generally based (when the comparable uncontrolled price (CUP) methodThe Comparable Uncontrolled Price (CUP) Method is a transfer pricing approach that assesses whether the price charged in an intercompany transaction between related entities is consistent with the arm’s length principle. The arm’s length principle, a fundamental concept in transfer pricing, requires that the conditions of a transaction between associated enterprises be equivalent to those which would have been agreed... is not applicable) on a comparison of the conditions in a cross-border controlled transaction with conditions in similar transactions entered into between independent companies (comparable companies). To determine if a cross-border controlled transaction has been carried out in accordance with the arm’s-length principle, the following steps must be taken:

1. identify the cross-border controlled transactions within the group;
2. identify the tested party for each relevant transaction;
3. perform a functional analysisFunctional analysis is the cornerstone of transfer pricing and international tax compliance, ensuring that intercompany transactions adhere to the arm’s length principle. It evaluates the roles, contributions, and risk profiles of entities within a multinational enterprise (MNE) to determine how profits and costs should be allocated. This process ensures that related-party transactions reflect the pricing that independent enterprises would establish... with special emphasis on comparability factors such as business activity, the characteristic of the property or service, the contractual conditions of the cross-border transactionIntra-Group Transactions are interactions between entities within the same multinational enterprise (MNE). Such transactions form the backbone of related-party dealings and are essential in managing global operations and aligning business objectives across jurisdictions. Understanding intra-group transactions is critical in international tax and transfer pricing, as they directly impact a company's tax obligations, profitability, and compliance standing. Tax professionals, accountants, lawyers,... and the economic circumstances in which the taxpayer operates;
4. select the appropriate transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... method or methods;
5. select the comparable companies and establish an arm’s-length range, determined by the comparable companies; and
6. examine whether the tested party’s results fall within the arm’s-length range.

According to the Israeli transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... rules, the initial burden of proofThe burden of proof is a foundational principle in legal proceedings, requiring a party to demonstrate the truth of their assertions to the requisite standard of evidence. In tax law, the burden of proof often determines which party—typically the taxpayer or the revenue authority—must establish that a transaction, deduction, or tax position is justified. This principle ensures fairness and clarity... lies with the taxpayer. As such, companies that do not transact at arm’s length, or that do not hold the required transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... documentation (proving their compliance with the arm’s-length principle), may be exposed to penalties and to a change of pricing as determined by the ITA at its discretion. These companies would be required to adjust their net income to incorporate the appropriate transfer prices for their intra-group transactionIntra-Group Transactions are interactions between entities within the same multinational enterprise (MNE). Such transactions form the backbone of related-party dealings and are essential in managing global operations and aligning business objectives across jurisdictions. Understanding intra-group transactions is critical in international tax and transfer pricing, as they directly impact a company's tax obligations, profitability, and compliance standing. Tax professionals, accountants, lawyers,.... This unilateral adjustment could lead to double taxationDouble Taxation occurs when the same income or financial transaction is taxed twice, typically in different jurisdictions. It can arise in two primary contexts: economic double taxation, where the same income is taxed twice in the hands of different taxpayers, and juridical double taxation, where the same taxpayer is taxed on the same income in more than one country. Double... regarding income taxed in other jurisdictions.

In rare cases where a transaction between related parties lacks any commercial rationale (namely the same transaction under similar economic circumstances would not have been agreed between non-related parties), the ITA may choose not to recognise the transaction in its original form, and may treat it as an entirely different type of transaction; a type of transaction that, in its view, would reflect the business reality of the transaction in a more adequate manner. This type of reclassification of a transaction can relate, inter alia, to the treatment of inter-company loans or cash poolingCash Pooling is a treasury management strategy used by multinational enterprises (MNEs) to optimise cash flow and liquidity across their corporate group. It involves centralising the cash balances of different subsidiaries into a single account or consolidating them virtually to manage liquidity more efficiently. Cash pooling helps reduce external borrowing costs, earn better interest on consolidated balances, and streamline cash... or non-repayment of inter-company debts, as dividends, as well as to the ownership of intangibles. Non-recognition can be contentious and a source of double taxationDouble Taxation occurs when the same income or financial transaction is taxed twice, typically in different jurisdictions. It can arise in two primary contexts: economic double taxation, where the same income is taxed twice in the hands of different taxpayers, and juridical double taxation, where the same taxpayer is taxed on the same income in more than one country. Double... and, while derived from Section 85A, it is based also on Section 86 of the Ordinance.

With regard to the accounting treatment of transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... positions, one of the main issues currently under discussion in Israel relates to the recognition of expenses with regard to employee stock option plan (ESOP) matters (see also Section VII.i), where the matters of vesting, exercise and cancellation of options granted to the employees of an Israeli subsidiary by the (foreign) parent corporation are considered.Recent developments – Israeli transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... regulationsTax Circular 15/2018

Based on the recent Gteko court ruling (6 June 2017) and the OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... Guidelines, the ITA published on 1 November 2018 Tax Circular 15/2018 dealing with business model restructuring inside a multinational enterprise (MNEWhat are Multinational Enterprises (MNEs)? Multinational Enterprises, commonly referred to as MNEs, are corporations that operate in multiple countries through various subsidiaries, branches, or affiliates. These entities maintain a central management structure while leveraging diverse resources, labour markets, and customer bases across borders. The fundamental aspect that distinguishes MNEs from other corporate forms is their cross-border activity, which can include...), and involving the functions, assets or risks (FARFunctional analysis is the cornerstone of transfer pricing and international tax compliance, ensuring that intercompany transactions adhere to the arm’s length principle. It evaluates the roles, contributions, and risk profiles of entities within a multinational enterprise (MNE) to determine how profits and costs should be allocated. This process ensures that related-party transactions reflect the pricing that independent enterprises would establish...) associated with the Israeli subsidiary of a MNEWhat are Multinational Enterprises (MNEs)? Multinational Enterprises, commonly referred to as MNEs, are corporations that operate in multiple countries through various subsidiaries, branches, or affiliates. These entities maintain a central management structure while leveraging diverse resources, labour markets, and customer bases across borders. The fundamental aspect that distinguishes MNEs from other corporate forms is their cross-border activity, which can include.... The Circular presents the ITA’s position with respect to business restructuring and defines ways for identifying and characterising business restructurings, and offers methodologies that are accepted by the ITA for valuation of transferred, ceased or eliminated FARFunctional analysis is the cornerstone of transfer pricing and international tax compliance, ensuring that intercompany transactions adhere to the arm’s length principle. It evaluates the roles, contributions, and risk profiles of entities within a multinational enterprise (MNE) to determine how profits and costs should be allocated. This process ensures that related-party transactions reflect the pricing that independent enterprises would establish... commonly involved in the course of a business restructuring (e.g., intangibles, skilled work force). With regard to each FARFunctional analysis is the cornerstone of transfer pricing and international tax compliance, ensuring that intercompany transactions adhere to the arm’s length principle. It evaluates the roles, contributions, and risk profiles of entities within a multinational enterprise (MNE) to determine how profits and costs should be allocated. This process ensures that related-party transactions reflect the pricing that independent enterprises would establish... transferred in a business restructuring, the Circular sets guidelines for the characterisation of a FARFunctional analysis is the cornerstone of transfer pricing and international tax compliance, ensuring that intercompany transactions adhere to the arm’s length principle. It evaluates the roles, contributions, and risk profiles of entities within a multinational enterprise (MNE) to determine how profits and costs should be allocated. This process ensures that related-party transactions reflect the pricing that independent enterprises would establish... transfer as a sale transaction or a ‘grant of temporary-usage permit’ transaction, for classifying it as a capital or ordinary income transaction.Tax Circulars 11/2018 and 12/2018

On 5 September 2018, the ITA published two circulars, Tax Circulars 11/2018 and 12/2018, setting out its approach towards classification and transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... methods appropriate for use in connection with certain inter-company transactions between an Israeli entity and related overseas parties that are part of a multinational group. The Circulars focus on inter-company transactions involving marketing services or sales and, in particular, on the approach to be used to classify a given entity as either a marketing services entity or a sales (distributor) entity. In addition, the ITA opined on how to choose the most appropriate transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... method, as well as which ranges of profitability (safe harbours) it sees as appropriate for these types of Israeli entities.

Taxpayers submitting reports in accordance with the approach outlined in Circular 11/2018, and whose results fall within the safe harbours provided under Circular 12/2018, would be exempt from the requirement to provide benchmarkingBenchmarking, within the context of transfer pricing, refers to the process of analysing and comparing financial and economic data from independent companies to establish a fair and arm’s length price for controlled transactions. It is typically conducted using databases that provide details about comparable companies and transactions. The objective is to determine whether the terms and conditions of intercompany transactions... support for the assertion that the transfer prices used are in accordance with market pricing. Nonetheless, the Circular does not otherwise provide an exemption from the existing requirement to prepare transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... documentation. A benchmarkingBenchmarking, within the context of transfer pricing, refers to the process of analysing and comparing financial and economic data from independent companies to establish a fair and arm’s length price for controlled transactions. It is typically conducted using databases that provide details about comparable companies and transactions. The objective is to determine whether the terms and conditions of intercompany transactions... analysis is not required in the event of an exemption, but other parts of the study are still required, together with a rationale for the method and safe harbour applied by the circulars.Circular 12/2018 safe harboursDistribution activity

For taxpayers where the analysis of the functions, risks and assets aligns with sales activities for low-risk distributors (LRDs), the exemption would be provided in the event that the entity reports an operating margin of three to four per cent in the domestic market (i.e., an operating margin profit level indicatorA Profit Level Indicator (PLI) is a financial metric used in transfer pricing to evaluate and compare the relative profitability of related-party transactions. PLIs serve as a critical tool in determining whether intercompany transactions comply with the Arm’s Length Principle (ALP), which mandates that transactions between related entities should be conducted as if they were independent parties operating in open... (PLIA Profit Level Indicator (PLI) is a financial metric used in transfer pricing to evaluate and compare the relative profitability of related-party transactions. PLIs serve as a critical tool in determining whether intercompany transactions comply with the Arm’s Length Principle (ALP), which mandates that transactions between related entities should be conducted as if they were independent parties operating in open...) shall be implemented at rates ranging from 3 per cent to 4 per cent).Marketing activity

For taxpayers where the analysis of the functions, risks and assets aligns with an entity performing marketing activities, and not sales activities, the circulars indicate that an appropriate transfer proving method would be based on the costs of this activities, with an appropriate markup added. The exemption for supporting the markup over the costs incurred based on benchmarkingBenchmarking, within the context of transfer pricing, refers to the process of analysing and comparing financial and economic data from independent companies to establish a fair and arm’s length price for controlled transactions. It is typically conducted using databases that provide details about comparable companies and transactions. The objective is to determine whether the terms and conditions of intercompany transactions... analysis would be provided for entities reporting a markup of 10 per cent to 12 per cent. (i.e., a net cost-plus PLIA Profit Level Indicator (PLI) is a financial metric used in transfer pricing to evaluate and compare the relative profitability of related-party transactions. PLIs serve as a critical tool in determining whether intercompany transactions comply with the Arm’s Length Principle (ALP), which mandates that transactions between related entities should be conducted as if they were independent parties operating in open... shall be implemented at rates ranging from 10 per cent to 12 per cent).Low-value-added services

The Circulars provide that for taxpayers with transactions involving low-value-added services (generally consistent with the OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... Guidelines), an exemption from some documentation requirements would be provided where the entity reported a markup of five per cent associated with these activities (i.e., a net cost-plus PLIA Profit Level Indicator (PLI) is a financial metric used in transfer pricing to evaluate and compare the relative profitability of related-party transactions. PLIs serve as a critical tool in determining whether intercompany transactions comply with the Arm’s Length Principle (ALP), which mandates that transactions between related entities should be conducted as if they were independent parties operating in open... (i.e., a markup) shall be implemented at the rate of 5 per cent).Tax Circular 4/2016

In 2016, in Tax Circular 4/2016, the ITA issued an update regarding the operations of foreign multinationals in Israel through the internet. This Circular, inspired by Action 1 of the OECD’s Action Plan on Base Erosion and Profit ShiftingBEPS stands for "Base Erosion and Profit Shifting". BEPS refers to tax avoidance strategies used by multinational enterprises (MNEs) to exploit gaps and mismatches in the international tax system. By shifting profits from high-tax jurisdictions to low- or no-tax locations, MNEs reduce their overall tax burden, even if little to no economic activity occurs in the low-tax jurisdictions. These practices erode... (the OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... BEPSBEPS stands for "Base Erosion and Profit Shifting". BEPS refers to tax avoidance strategies used by multinational enterprises (MNEs) to exploit gaps and mismatches in the international tax system. By shifting profits from high-tax jurisdictions to low- or no-tax locations, MNEs reduce their overall tax burden, even if little to no economic activity occurs in the low-tax jurisdictions. These practices erode... Action Plan) concerning the digital economy, provided new guidelines and rules under which foreign companies’ income derived from selling products or providing services through the internet to Israeli residents (digital activity) will be deemed the income of a permanent establishment (PE) in Israel for tax purposes. The Circular distinguishes between foreign enterprises that are residents of a treaty state (treaty resident companies) and foreign enterprises that are residents of a non-treaty state (non-treaty resident companies) and provides different rules for determining the income attributed to the Israeli PE for each of the aforementioned company types.Draft circulars

Currently, the ITA is holding round-table talks on other draft circulars, including in the fields of burden of proofThe burden of proof is a foundational principle in legal proceedings, requiring a party to demonstrate the truth of their assertions to the requisite standard of evidence. In tax law, the burden of proof often determines which party—typically the taxpayer or the revenue authority—must establish that a transaction, deduction, or tax position is justified. This principle ensures fairness and clarity...; implementation of development, enhancement, maintenance, protection and exploitation of intangibles (DEMPE) analysis; and profits associated with management functions.

Broader taxation issuesi Diverted profits taxDiverted Profits Tax (DPT) is a tax measure designed to counteract aggressive tax avoidance by multinational enterprises (MNEs). It aims to address arrangements where profits are artificially shifted to jurisdictions with lower tax rates or where transactions lack genuine economic substance. Introduced initially by the United Kingdom in 2015, DPT is sometimes informally called the "Google Tax" due to its... and other supplementary measures

As noted above, the ITA may use either Section 85A and the Regulations, or other means such as Section 86; however, no specific measures relating to transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... matters have been enacted, since, among other reasons, the current measures (i.e., Section 86) are general enough to be implemented (also with regard to transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of...).ii Double taxationDouble Taxation occurs when the same income or financial transaction is taxed twice, typically in different jurisdictions. It can arise in two primary contexts: economic double taxation, where the same income is taxed twice in the hands of different taxpayers, and juridical double taxation, where the same taxpayer is taxed on the same income in more than one country. Double...

Double taxationDouble Taxation occurs when the same income or financial transaction is taxed twice, typically in different jurisdictions. It can arise in two primary contexts: economic double taxation, where the same income is taxed twice in the hands of different taxpayers, and juridical double taxation, where the same taxpayer is taxed on the same income in more than one country. Double... would seem to be unavoidable in cases where another jurisdiction has taxed the company on account of transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... issues. For example, in the event a related party in a foreign jurisdiction is characterised as a permanent establishment, or accused of having inadequate transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... documentation or failing to implement it, the foreign jurisdiction will tax it accordingly and the ITA will not take this into consideration, which will result in double taxationDouble Taxation occurs when the same income or financial transaction is taxed twice, typically in different jurisdictions. It can arise in two primary contexts: economic double taxation, where the same income is taxed twice in the hands of different taxpayers, and juridical double taxation, where the same taxpayer is taxed on the same income in more than one country. Double....iii Consequential impact for other taxes

VAT and inter-company transactions have been the focus of several recent ITA audits, and of a recent court ruling, which imposed VAT on sales performed from Israel. Although this matter is tied heavily to transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of..., the issue of transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... itself was not argued by the parties in this case and was not decided by the court.

Customs are also of relevance when the sale of tangible goods takes place between related parties. However, as transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... cases rarely reach the courts, any use of transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... rules is usually part of the discussion with customs.