As an update to a proposed 2017 bill (Income Tax Ordinance No. 238 5777-2017), which was approved in the first reading in the Knesset (Israeli Parliament), the Israeli government amends its proposal to update its transfer pricing legislation to largely align with BEPS requirements adopted by the OECD Guidelines.
The current transfer pricing legislation was legislated under Section 85A of the Israeli Tax Ordinance, Determination of Market Conditions 5767-2006, and addressed the definition of related party, transfer pricing methods (including hierarchy), and an outline of documentation requirements. The proposed draft update submitted in October 2020, the Income Tax Ordinance Amendment 5752-2020, however, proposed to amend and expand upon such documentation requirements by providing taxpayers and preparers an overview of Action 13 of the BEPS initiative, outlining Master File, Local File and Country-by-Country Reporting structures. If such is finally 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 and, if consolidated turnover exceeds Israeli Shekel ₪3 billion (approximately €750m), complete Country-by-Country reporting as well. In addition, the proposed amendment includes additional regulations with the purpose of making Israeli transfer pricing audits more efficient and streamlined, including wording to ensure that documentation is done on an ongoing basis prior to determining the transfer price and not retrospectively as well as indicating the location of the Country-by-Country filing.
The Israeli government leaves an option open to the public for comments, insights and suggestions until November 2, 2020 at 11:59 at (Israeli Ministry of Justice website in Hebrew): https://www.tazkirim.gov.il/s/tzkirim?language=iw&tzkir=a093Y00001RdoZ8QAJ