Israeli tax authorities issue updated transfer pricing declaration Form 1385

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

The Israeli tax authorities recently issued an updated Form 1385, which is a declaration by management of Israeli entities regarding their intercompany transactions with related parties, in accordance with Section 85A of the Income Tax Ordinance (Determining Market Conditions), 5768.

The updated form, which is required to be completed and submitted with tax reports as of 2018, expands and clarifies the nature of the tax declaration required regarding market conditions in intercompany transactions.

The updated form requires, inter alia, that the taxpayer define the transfer pricing methodology applied for each of its intercompany transactions, including the net profit indicator used (as defined in the transfer price regulations) and the financial volumes of each transaction.

In addition, details of the related counterparty to each intercompany transaction (name, location, and tax identification numbers) are also required in order to facilitate exchange of information with tax authorities in other respective countries, as needed.

Finally, the form seeks disclosure as to whether the taxpayer wishes to apply the “green track” (safe harbors) to certain transactions as stated in Income Tax Circular 12/2018.

It is important to note that all of the above must be replicated for each individual transaction type.

The personal responsibility for signing the form, coupled with the full disclosure, details and accuracy required in the completion of the updated Form 1385, includes a requirement to be aligned with the taxpayer’s financial statements and therefore obligates thorough documentation of the material intercompany transactions with reference to the OECD Guidelines and the ITA’s tax circulars and reinforces the need for consultation when issuing the said declaration.

-Jacky Houlie is founder/Managing Partner at JH & Co. Law Office.

-Shlomo Hubscher is a partner at JH Consulting Ltd.

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