In this article, we highlight the strength of the Israeli technology market and the upswing of foreign investment in Israel in various forms (e.g. acquisitions, establishment of subsidiaries). We review the Israeli tax incentives in maintaining intellectual property within Israel as well as both OECD and Israeli principles of Business Restructuring, addressing the various resulting models, such as outright sale and licensing structures. 

 

1. Israeli Technology Market

The State of Israel, though established only 70 years ago, consisting of a nation of primarily refugees and simple farmers, today represents one of the world’s leading global economies with strong subsectors in technology and innovation. The success of the Israeli economy has not gone unrecognized. In August of last year, Standard & Poor’s, the international credit rating agency, announced that that it was upgrading Israel’s sovereign rating to AA-, the highest rating Israel has ever achieved.[1] Similarly, as detailed below, Israeli innovation has caught the attention of corporate investors – over 300 multinationals have opened offices or acquired local companies in order to develop or further enhance high-value intellectual property (“IP”).[2]

 

With an estimated 82 percent of days of sunshine per year, tourism in Israel is one of the state’s major sources of income,  along with industrial manufacturing, diamond cutting, chemicals, plastics, pharmaceuticals and other medicaments, and thanks to recent discoveries of natural gas reserves off its coast, refined energy.[3] However, it is the high-tech space in which Israel is truly leading on a global scale. In light of its small size and history, as well as the geopolitical complexities that it faces, Israel turns to a strong combination of innovation and entrepreneurial drive in order to succeed in this sphere.

 

“Start-up Nation,” the NY Times best-selling book,[4] addresses how such a small state succeeded to become a country with twice as much venture capital investment than the United States and produces more start-up companies than, inter alia, Japan, China, India, Korea and the UK. The book summarizes how Israel spends a larger percentage of its economy on research & development (“R&D”) than any other country in the world and has more start-ups per capita than any other country. It suggests that the scale of innovation stems from Israel’s culture of self-confidence, challenging formalities, asking questions and willingness to take on risk. Finally, its political isolation among its nearest neighbors has forced Israel to think globally from the onset and focus on digital commerce, which is easier to export long distances.

 

It is noteworthy that, since 2012, Israel has the most companies publicly traded on the Nasdaq in the world outside of the U.S. and China.[5] As mentioned, over 300 multinational enterprises (“MNEs”) have recognized the vast skills and capabilities of Israeli high-tech personnel and many have established R&D centers scattered throughout the country. The list is headlined by such industry stalwarts as Google, Facebook, Amazon, Microsoft, IBM, Alibaba, and Cisco and covers the full spectrum of the various technologies in leading fields.

 

Israel’s Ministry of Economy and Industry’s division, “Invest in Israel”[6] lists a sundry of technology subsectors that constitute Israel’s hi-tech ecosystem:

Throughout commerce, large corporations often seek to identify targets for a merger or an acquisition (“M&A”). Motives for M&A vary based on the facts and circumstances of each individual case, but may include, inter alia, the following main points:

 

1. Synergies: M&A may be advantageous if a target offers complementary strengths or if the acquiring entity may compensate for the target’s weaknesses.
2. Growth: ‘horizontal mergers’ enable a company to increase market share.
3. Diversification: In what may seem unrelated, a target may be considered to offset the impact of performance of a particular industry.
4. Standardization / Focus: In an opposite strategy from diversification, a company may seek further market penetration by acquiring or merging with a target with like operating areas.
5. Elimination of Competition: In an effort to cease the competitive efforts in keeping up with other market players, this strategy may entail the acquisition of the competition instead.
6. Increase of Supply Chain Pricing Power: ‘vertical mergers’ include, inter alia, acquiring a down-stream supply chain participant, such as a distributor, in order to reduce shipping costs or acquiring an upstream participant, such as a supplier, in order to reduce raw material costs.

 

Today, investment in Israel continues.  In the above context, MNEs continue to look to Israel in highly lucrative M&A deals. In the last three years, 8 of the 15 largest acquisitions in Israel’s history took place, all valued at over $1b each.[7] In 2017, for example, Intel Corporation acquired Jerusalem-based Mobileye for $15.3b, in order to further develop technology that will enable it to penetrate the autonomous vehicles sector. According to a recent Forbes article, almost six and a half billion U.S. Dollars were invested in Israeli hi-tech start-ups in 2018, a 17% increase from one year prior and more than double the amount in 2013.[8]

 

When a company acquires an Israeli entity and the intellectual property associated with its technologies, it must consider its various strategic approaches as well as business, operational and tax consequences. For example, the acquiring company may have a centralized IP structure that attempts to consolidate the jurisdiction(s) in which IP is located. Simultaneously, the company would be remiss not to factor in tax incentives, such as Israel’s reduced corporate tax rates on IP-based income, as will be detailed in the following section.

 

2. Tax Incentives in Israel

The State of Israel provides significant tax incentives in order to encourage maintaining IP ownership at the domestic level. The reduced rates discussed herein are in contrast to the standard corporate tax rate in Israel of 23%.

 

The Israeli parliament, the Knesset, initially introduced the Law for the Encouragement of Capital Investments in 1959 (5719) with the stated objectives of, inter alia, improving the (Israeli) business sector to compete in conditions of competition in the international environment and to encourage capital investment in economic initiatives, for which the law provided assistance in grants and tax benefits.[9] Over the years, this law has been updated, taking into account the global economy’s operating procedures and legislation, including those of the Organization for Economic Coordination and Development (the “OECD”), of which Israel has been a member country since 2010.

 

The Israel Innovation Authority (“IIA”)[10] is a governmental agency that provides financial subsidy to early-stage entrepreneurs (startup division) as well as to mature companies (growth division) in the process of R&D for new products.[11] The IIA is charged with the mission to advance Israel’s knowledge-based science and technology industries in order to encourage innovation and entrepreneurship. The Knesset’s 1984 (5744) law, the Law for the Encouragement of Industrial Research and Development (the “R&D Law”),[12] was passed with similar objectives of enhancing development of Israeli science-based industry, increasing the manufacture and export of high-tech products developed within Israel and creating employment opportunities by exploiting Israel’s highly capable scientific and technological labor force.

 

In May of 2017, the Finance Committee of the Knesset approved a new IP tax regime, effective as of 01.01.2017. Companies that qualify for this regime will be subject to reduced corporate tax rates on IP-based income as well as capital gains from the future sale of IP. In light of potential substance exposures as outlined in the Base Erosion and Profit Shifting (“BEPS”) project, promulgated by the OECD in collaboration with the G20,[13] the Israeli IP tax regime will also be contingent on the extent of continued R&D activity within Israel in order to be compliant with BEPS standards.

 

Tax incentives in Israel are available to certain Israeli industrial companies and to R&D centers (operating on a cost plus basis) under the following tracks:[14]

 

• a Preferred Enterprise (“PFE”) if, inter alia, the enterprise contributes to the development of the productive capacity of the economy, absorption of immigrants, creation of employment opportunities; under this track a PFE corporate tax rate will vary[15] between 7.5% and 16%;

 

• a Special Preferred Enterprise (“SPFE”), aimed at large enterprises that meet certain investment requirements and will greatly contribute to the Israeli economy; under this track, a SPFE corporate rate will vary between 5% and 8% for ten years.

 

• A Preferred Technology Enterprise (“PTE”) for companies operating in the technology sector and meeting other growth criteria; under this track a PTE corporate tax rate will vary between 7.5% and 12%.

 

• A Special Preferred Technology Enterprise (“SPTE”) for technology companies meeting certain eligibility criteria and also are part of an MNE with annual revenues of at least 10 billion Israeli Shekel (“ILS”) (currently the equivalent of approximately U.S. $2.5 billion); under this track, a SPTE corporate tax rate of 6% may apply for a period of at least ten years.

 

The IIA and the Israeli Tax Authorities (“ITA”) continue to provide guidance and rulings with regards to use of IP that had been developed under the incentive programs. In August 2018, the IIA issued directives for use of Israel-based know-how outside of Israel, upon approval, and subject to payment of royalties to the IIA.[16] Similarly, an October 2018 ‘Green Track’ ruling by the ITA codified the ‘flip’ of a holding structure and the tax implications thereof, specifically addressing Israeli-owned IP and their potential or actual foreign suitors.[17] Even as recently as the last day of the 2018 calendar year, the ITA issued an additional circular, Tax Circular No. 21/2018: “Tax Benefits for Investments in Public Companies Operating in the R&D Industry”, aimed at encouraging R&D companies to raise capital through the Israeli stock exchange.[18]

 

3. OECD Guidelines Background on Business Restructuring and its Applicability to the Israeli Hi-Tech Sphere

In July of 2017, the OECD released its updated version of its Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereinafter, the “OECD Guidelines”),[19] which primarily reflected a consolidation of the changes resulting from the BEPS project,[20] but also included other revised guidance that had been introduced in preceding years. Among these revisions, the updated OECD Guidelines included the changes to Chapter IX, the transfer pricing (“TP”) aspects of business restructurings, conforming with BEPS as well as additional points by the OECD’s Committee on Fiscal Affairs earlier in 2017.

 

In the revised Chapter IX, the OECD reaffirms that MNEs are free to organize their commercial operations as they see fit and should not be instructed by their tax authority as to how to design the location of business operations. In addition to synergies, economies of scale and streamlining the efficiency of a supply chain (see motives for M&A in Section 1 above), the OECD recognizes that tax considerations may also be a contributing factor to a business restructuring, though subject to application of the arm’s length principle and Article 9 of the OECD Model Tax Convention.[21]

 

Similar to the overarching principles outlined by BEPS for general transactions, Chapter IX applies the same approach in its guidance of analyzing business restructurings.[22] In order to identify the commercial or financial relations between the parties, an analysis would include:

 

1. An accurate delineation of the transactions that constitute the pre- and post- business restructuring, including a thorough analysis of functions performed, risks assumed and assets employed by each relevant party;

 

2. Consideration of the business reasons and the expected benefits from the restructuring, including synergies and efficiencies;

 

3. Economically relevant circumstances and other options realistically available to the parties of the restructuring;

 

4. Transfer pricing analysis of the transactions pre- and post- restructuring.

 

As relevant to the common scenario of Israeli companies being acquired by MNEs, Chapter IX addresses the transfer of intangibles, or rights thereof, within the context of a restructuring. A transfer of intangibles may raise challenges of both identification as well as arm’s length valuation of intangibles, as not all intangibles are legally protected or recognized for accounting purposes. The general concept is to apply the same guidance in application of the arm’s length principle, found in Section D.1 of Chapter VI of the OECD Guidelines.

 

 

However, it may also be affected by certain factors, inter alia, the amount, duration and riskiness of the expected benefits from the exploitation of the intangible, the nature of the intangible right and the restrictions that may be attached to it (e.g. restrictions in the way it can be used or exploited, geographical restrictions, time limitations), the extent and remaining duration of its legal protection (if any), and any exclusivity clause that might be attached to the right.[23] Moreover, the OECD Guidelines incorporates[24] the concept outlined in BEPS Actions 8-10 Report, which stipulates the focus on which entity within an MNE is responsible for the development, enhancement, maintenance, protection, and exploitation (“DEMPE”) of intangibles.

 

It is common that intangibles developed and owned by an Israeli company that are migrated to a foreign MNE after an M&A are continued to be exploited or enhanced for the most part by the in-house Israeli R&D team. This new arrangement is no longer the Israeli company exploiting the intangibles for its own purpose, but rather on a contract basis or on a license basis in cooperation with the new IP owner and the determination of which entity is mostly involved in DEMPE would then become more critical. Chapter IX recommends[25] that the entirety of the commercial arrangement should be scrutinized and compared to an independent party which would only transfer an intangible that it intends to continue exploiting after negotiating terms and conditions for such use (e.g. a license and/or a contract R&D structure).

 

4. Business Restructuring in Israel

On June 6, 2017, an Israeli district court ruling was issued, the first in Israel to address transfers of intangibles. To summarize Gteko Ltd. vs. Kfar Saba Assessing Officer, Ruling 49444-01-13 (the “Gteko Ruling”),[26] the court ruled that post-M&A transfers of human and capital assets, including IP, should be considered as a sale of an entire business and therefore the IP value should be aligned with the initial acquisition price. The Gteko Ruling emphasized that the focal question should be what the essence of the transaction(s) is and not the ‘dressing’ around it (what is widely referred to as ‘substance over form’). Moreover, the Israeli district court demonstrated its stance on the potential benefits of synergies. Although synergies may have influenced the initial acquisition price, that does not necessarily prove that an independent party would not identify another benefit that would similarly influence the acquisition price. In this light, the court ruled that the value of the intangibles should not be further reduced by the synergy value. Finally, Microsoft Corp., the acquiring foreign MNE in the case at hand, transferred human capital (also known as Workforce in Place) from Gteko Ltd. to Microsoft’s other Israeli subsidiaries. The court’s view is that a workforce’s professional know-how and possession of commercial secrets related to the technology represents additional substantial value beyond the ‘listed value’ of the technology itself. Since this issue has been under discussion for several years, there are quite a few large disputes between taxpayers and the ITA on these issues.

 

On November 1, 2018, the Israeli tax authorities published Tax Circular No. 15/2018: Business Restructuring within a Multinational Group (“Circular 15/2018”),[27] clarifying the Israeli government’s stance on the tax and transfer pricing aspects of changes in business models. Circular 15/2018, heavily based on Chapter IX and on the Gteko Ruling, outlines techniques for identification and characterization of restructuring (including required disclosures), acceptable methodologies for assessing the functions, assets, and risks that have been transferred or ceased, as well as the tax implications of the restructuring.

 

Circular 15/2018 clarifies that it does not profess to constitute a systematic guide to transfer pricing or valuations, but rather establishes the ITA’s position and approach, as aligned with Chapter IX. Circular 15/2018 dictates three main stages of identifying a potential business restructuring by starting with a thorough functional analysis (pre- and post- restructuring), review of intercompany agreements in place and consideration of realistically available alternatives at the time of the suggested restructuring.

 

Similarly aligned with the OECD Guidelines, Circular 15/2018 addresses and incorporates the following issues:

 

• Legal vs. economic ownership of intangibles: legal ownership of intangibles alone is not sufficient to grant economic benefits. Rather, contribution to the creation of the intangible value is what grants such rights;
• Sale vs. license of intangibles: as detailed below in section 5;
• Execution and control of the primary functions and risks, especially those related to the DEMPE of intangibles, as discussed above;
• Group synergies: though an excess in value of a certain intangible may be the result of synergies between the company acquiring the intangible and the company selling the intangible, a synergy is not considered to be an asset, though it is recognized as an influence on the value of the company’s assets.
• Goodwill/going concern value: though the Circular does not provide a precise definition of its value, it does recognize that goodwill and going concern value may play a significant role in the monetary compensation paid between parties.
• While market-specific advantages are not considered an intangible asset, access to a workforce in place may be considered an intangible asset (i.e. the potential transfer of a workforce with inherent know-how may save time and expenses on recruiting, screening and training replacements).
• The ITA’s preferred methodologies for evaluating business activity that was transferred or ceased, including reference to a former unrelated transaction value (CUP, as defined below), and, when necessary, a valuation including the application of the income approach and adjustments as needed;
• Other tax ramifications that may result from a restructuring, such as how it would affect Israeli tax incentives and potential secondary adjustments.

 

5. Relevant Application

As Israel is often referred to as the “Startup Nation” (based on the aforementioned book of the same moniker), with many technology companies being acquired by foreign parents, the transfer pricing aspects of such exits and other restructurings, including implementation thereof, has increasingly appeared on the radar of the Israeli Tax Authorities. Taking into account the aforementioned regulations such as Chapter IX of the OECD Guidelines, Circular 15/2018 and the Gteko Ruling as well as consideration of Israel tax incentives and the prominent atmosphere of Israeli hi-tech companies being acquired by foreign MNEs, we discuss varying models how to approach transfers of intangibles from Israeli companies.

 

5.1 Licensing Model

If the related parties were to structure the transaction as a license transaction, i.e. the use of the IP is clothed in a legal licensing agreement and similar form of payment, Circular 15/2018 discusses how the economic substance would be the determining factor of whether or not the royalty income for such should constitute a capital transaction. Shifting the focus from a legal perspective to an economic perspective, the criteria expected to influence such determination would include, inter alia, value creation, useful life and substance.

 

As stipulated in Circular 15/2018, the following factors are based on general tax and legal practices as established by Israeli courts and are not unique to business restructuring.  In analyzing the characterization of the transaction (i.e. capital gain or license transaction) the following facts and circumstances will be considered:

• Has the licensor (in our case, the Israeli company) relinquished its share (or major portion thereof) in an intangible?
• Is the separation of the intangible from the original owner in perpetuity?
• Are the recipient’s rights to use the intangibles unlimited in nature?
• Are the recipient’s rights to use the intangibles exclusive?
• Does the recipient have rights to claim and protect its rights?
• In the case of software, does the recipient receive source code of the IP?
• Does the recipient have the right to make changes or modification of the IP?
• Are the rights to use the asset the same period as its economic life?

 

In addition to the above, additional considerations are made during a business restructuring:

• Does the recipient also obtain rights in future developments of the transferred IP?
• From this point forward, which party manages and controls the functions related to the development and safe-keeping (i.e. DEMPE) of the intangibles?
• From this point forward, which party bears the risks and costs associated with the DEMPE of the intangibles?
• From this point forward, which party makes the business decisions regarding assumption of risks, development and safe-keeping of intangibles?

 

Finally, assuming the substance requirements from the previous paragraph are substantiated, post-restructuring transactions must be addressed, as stipulated in Chapter IX and Circular 15/2018. In the context of a licensing model, the resulting transaction would be royalty payments by the licensee to the licensor. An arm’s length remuneration for royalty rates needs to be determined for the license, based on the facts and circumstances of the transaction. In this sense, it is critical to identify within a licensor-licensee transaction, where decision-making, risk control and significant functions lie, in particular, the DEMPE functions post-restructuring.

 

Royalty rates are commonly priced based on the external Comparable Uncontrolled Price (“CUP”) transfer pricing methodology,[28] whereby similar licensing contracts between third parties are identified that may be deemed comparable to the transaction under analysis. The royalty rates identified in these agreements may be used as a reference for the arm’s length for such a license. An alternative approach to pricing licensing transactions is to benchmark routine functions (e.g. the sale of the product included in the license) for the remuneration expected by the licensee. Any residual profit above and beyond the routine return of the licensee may be deemed as the royalty to the licensor, representing the ‘intangible’ element of profits. In either royalty model, individual tax treaties should be considered to determine to what extent withholding tax would be applied to the relevant royalty payments.

 

A sub-category of the licensing model may be a cost-sharing arrangement (“CSA”), as defined by Section 482 of the U.S. Internal Revenue Code.[29] A CSA is a contract by which the participants agree to share the cost of developing intangibles that will be separately exploited by each of the participants. Each participant obtains a separate interest in the cost shared intangibles, often based on a geographic basis. Simply to enter into such an arrangement would require a valuation exercise to determine ‘buy-in payments’ by the participant joining the already developed IP, entailing a clear and thorough functional analysis in order to identify and allocate the DEMPE functions of each side to the CSA and their respective returns associated with their contributions.

 

In addition to transfer pricing considerations, an Israeli company that had benefited from grants or other tax incentives through the IIA, must also take into consideration rules and regulations that bind such beneficiaries, when entering into a license arrangement. The IIA may be viewed as a form of an early-stage investor, expecting to see a return to the State of Israel, over time. If an Israeli company’s technology was partially funded / subsidized by IIA benefits, it ‘owes’ a return to the IIA if the exploitation of such technology is moved outside of Israel. In this light, the IIA has issued updated rules in September 2018, formalizing a royalty to IIA of 5% of the license fees for an intangible (at least partially) funded by an IIA program (based on an arm’s length transfer pricing analysis) assuming it is licensed to a cross-border, related party, and that the associated group’s consolidated annual turnover was over US $2b. Such royalty to the IIA is subject to a list of conditions for approval, but is capped at up to 150% (plus accrued interest) of the total aggregate amount received from the IIA.[30]

 

5.2 Outright Sale Model

If all or part of the ownership rights of intangibles are determined to be transferred, then this outright sale is deemed a capital gain transaction and would be subject to capital gains tax.

 

When the sale occurs following a share purchase transaction, the purchase price may be viewed by the ITA as a comparable transaction at the market price (arm’s length) and provide reliable comparative data.

 

In this case, the ITA views the acquisition as a basis for the implementation of the CUP method, which is considered a preferred method under the Transfer Pricing Regulations in Israel, subject to the necessary adjustments such as the value of the functions, assets and risks (“FAR”) that were and were not transferred by the Israeli company.

 

In the absence of such a comparable transaction with a party with which there are no special relationships, the ITA may view the discounted cash flow (“DCF”) model as the most acceptable for a valuation technique.

 

In light of the Gteko Ruling above, Circular 15/2018 also stipulates factors that should be considered in the valuation of the intangibles in an outright sale. For example, the ITA’s position is that synergies are integral to the value of company’s assets and must be taken into account when considering the accurate value of an intangible. Similarly, the ITA addresses how the transfer of workforce in place,[31] such as in the Gteko case, may indicate the transfer or outright sale of the entire business.

 

In addition to transfer pricing considerations, an Israeli company that had benefited from grants or other tax incentives through the IIA, must also take into consideration rules and regulations that bind such beneficiaries, when entering into an outright sale of intangibles. If an intangible that was, at least partially, funded by the IIA is approved for sale to a company outside of Israel, a repayment is required by the initial company funded of the grants received, plus an additional one-time ‘exit payment’. This one-time payment is structured based on a formula outlined in the R&D Law and can result in payments of up to six times the grants received.[32]

 

6. Conclusion

In light of Israel’s reputation as “Start-up Nation”, with many local technology companies being acquired by foreign parents, the transfer pricing aspects of the transfer of Israeli-developed intangibles have increasingly appeared on the radar of the Israeli tax authorities. Emboldened by recent tax rulings in Israeli courts, the ITA is taking a proactive approach to the post-BEPS era and issuing circulars and guidance that will ensure that migration of Israeli-developed intangibles does not go unaccounted for.

 

In this article, we have presented several Israeli tax and transfer pricing aspects relating to the transfer of IP outside of Israel. In conclusion, as the ITA is highly alerted to this issue, such transactions should be carefully analyzed both with respect to the structure of transaction – sale or a license transaction, as well as identification and application of the most appropriate pricing methodology. Each IP transfer must be considered based on the facts and circumstances on a case-by-case basis, as well as the respective ramifications discussed above. In particular, if there is a significant gap between the overall transaction value of the acquired Israeli target to that of the value of the IP under discussion, additional scrutiny should be expected.

[1]  Globes correspondent, S&P Raises Israel’s Credit Rating, Globes, 05.08.18

[2] Solomon, S., As Multinationals Multiply, Israel Seeks Balance Between Good and Bad, Times of Israel, 27.09.18

[3]  Israel: Economic and Political Outline

[4] Senor, D. and Singer, S., Start-up Nation: The Story of Israel’s Economic Miracle, (Hachette Book Group, 2009)

[5] Hirschauge, O., Five Israeli Companies are Planning IPOs in 2018 Says Nasdaq President; Calcalist, 13.03.18

[6] Ministry of Economy and Industry State of Israel, Invest in Israel , available at: https://investinisrael.gov.il/ExploreIsrael/Sectors/Pages/sectors.aspx

^[7] Blum, B., The 15 Biggest Acquisitions in Israeli History, Israel21c, 27.12.18

[8] Press, G., 2018 Was a Record-Breaking Year for Israeli Startup Funding. What’s Next?, Forbes, 14.01.19

[9] Available in Hebrew at: Knesset Legislation Database –Law for Encouragement of Capital Investments

[10] This division of Israel’s Ministry of Economy and Industry was formerly known as the Office of Chief Scientist until it was renamed in 2016.

[11] Additional details of the programs and divisions available among the IIA’s initiatives, can be found here (in English): https://innovationisrael.org.il/en/contentpage/israel-innovation-authority

[12] Available in Hebrew at: Knesset Legislation Database – Updates of Law for the Encouragement of Industrial Research & Development

[13] The G20 refers to 19 individual countries – Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, UK and U.S. – along with the European Union.

[14] PricewaterhouseCoopers Worldwide Tax Summaries: Israel Corporate – Tax credits and incentives

[15] The lower end of these ranges are available if the taxpayer is situated in areas of the country specified by the Israeli government (e.g. Jerusalem, the far north or southern regions).

^[16] Gonen, O. and Ben Dori-Alkan, C., Encouraging R&D and IP Asset Retention Remains the Trend in Israel;

Reinhold Cohn Newsletter, 13.01.19

[17] Halabi, O., Israel: To Flip Or Not to Flip – The ITA And The New Green Track; Mondaq, 04.01.19

[18] Available in Hebrew at: https://taxes.gov.il/incometax/documents/hozrim/hoz_21_2018_acc.docx.pdf

[19] OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD 2017)

[20] Specifically, OECD/G20 (2015), Aligning Transfer Pricing Outcomes with Value Creation, Actions 8-10: 2015 Final Report; and OECD (2015), Transfer Pricing Documentation and Country-by-Country Reporting, Action 13: 2015 Final Report; (OECD 2015)

[21] Supra note 19, para. 9.34

[22] Ibid, para. 9.10 – 9.14

[23] Ibid, para. 9.55 – 9.56

[24] Ibid, para. 6.32

[25] Ibid, para. 9.61

[26] Available in Hebrew at: http://www.capitax.co.il/Attachments/49444-01-13.pdf

[27] Available in Hebrew at: https://taxes.gov.il/incometax/documents/hozrim/hoz_15_2018_acc.pdf

[28] Supra note 19, para. 2.14

[29] US: Internal Revenue Service, Internal Revenue Code, sec. 482, available at: https://www.irs.gov/irm/part4/irm_04-061-003

[30] Tepper, R., Israel: New Licensing Rules by the Israeli Innovation Authority for Multinational Corporations, Mondaq, 22.01.19

[31] The approach to know-how inherent in an assembled workforce is influenced by the ‘significant people function’, as found in OECD/G20 (2015), BEPS Action 7 – Additional Guidance on Attribution of Profits to Permanent Establishments (Public Discussion Draft) (OECD 2017)

[32] Tepper, R. & Fried, S., FBC & Co., Legal Update: Hi-Tech, Technology & Venture Capital, 06.2017