The Israeli transfer pricing regulations have been in place since legislated in November 2006. The initial legislation generally followed the OECD Guidelines and required that cross-border, related party transactions be undertaken according to the arm’s length principle.
Recently, Israel’s transfer pricing regulations were significantly amended in light of the OECD / G20’s BEPS initiative, effective for Israeli taxpayers as of fiscal year 2022 tax filing. The 2022 Amendment aligns Israel’s transfer pricing laws more closely with the updated OECD Guidelines, which have incorporated Action 13 of the BEPS initiative, outlining local file, master file, and country-by-country reporting (“CbCR”) requirements. Moreover, the updated transfer pricing reporting form (1385) demonstrates a clear requirement for the taxpayer to prepare contemporaneous/yearly transfer pricing documentation to be prepared in real time and submitted within 30 days of a formal request by the ITA.
The 2022 Amendment emphasizes the ITA’s attention to transfer pricing matters and its desire to be fully aligned with the OECD requirements and it is more critical than ever for proper documentation to be in place and to be updated annually.
The update to the 1385 transfer pricing form as well as the FY 2022 introduction of Form 1585 related to the BEPS documentation requirement indicate that the ITA is ready to aggressively identify which taxpayers have applied appropriate transfer pricing methods and meet compliance standards for the new transfer pricing documentation format.