Israel issues updated draft proposal to amend transfer pricing documentation requirements

By Jacky Houlie, JH & Co. Law Office and Shlomo Hubscher JH Consulting Ltd.

The Israeli government, on October 12, released an amended proposal to update Israel’s transfer pricing laws.

The proposed update would amend the government’s proposed 2017 bill (Income Tax Ordinance No. 238 5777-2017), which had already been approved in the first reading in the Knesset (Israeli parliament). The new amendments would align Israel’s transfer pricing laws more closely with the OECD transfer pricing guidelines and also introduces a requirement for contemporaneous documentation, submitted upon request from assessing officers.

Israel’s current transfer pricing legislation implements Section 85A of the Israeli Tax Ordinance, Determination of Market Conditions 5767-2006, addressing the definition of a related party, transfer pricing methods (including transfer pricing method hierarchy), and outlining the documentation requirements.

The proposed draft update provides an overview of Action 13 of the OECD/G20 base erosion profit shifting (BEPS) initiative, outlining master file, local file, and country-by-country reporting requirements and would amend and expand upon the documentation requirements to be inclusive of such.

If approved by the parliament, Israeli entities in multinational groups will be required to collect and document the information within the master file / local file structure if consolidated turnover exceeds Israeli Shekel ₪3 billion (approximately EUR 750 million) and complete country-by-country reports.

The proposed amendment also includes additional regulations aimed at making Israeli transfer pricing audits more efficient and streamlined, including enforcing contemporaneous documentation and eliminating the previous standard of a 60-day grace period to submit documentation upon request.

The Israeli government asks the public for comments, insights, and suggestions on the proposal until November 2.

– Jacky Houlie is founder/managing partner at JH & Co. Law Office.

– Shlomo Hubscher is a partner at JH Consulting Ltd.