Owner file

Finance Committee Approves Changes to Master File and CbCR Rules and Other TP Requirements

Following our March and April updates of this year, June 14e, 2022, the Finance Committee of the Knesset (Israeli Parliament) approved changes to include the concepts of Master File and Country-by-Country Reporting (CbCR), as well as updating other reporting requirements in Israel. These changes are still subject to approval (2n/a and 3rd reading) of the law in the Knesset. This step is likely to prevent Israel from being included in the OECD’s “blacklist” of uncooperative tax havens, as threatened by the OECD.

As previously published, our company, represented by our transfer pricing manager, Adv. (Economist) Eyal Bar-Zvi, participated on behalf of the Israeli Bar in the recent discussions held by the Finance Committee regarding the modification of the Israeli tax ordinance (the “Ordinance”), as well as the Israeli regulations on the prices of transfer (the “Settlement”). The following key points were approved by the Committee:

Practical documentation:

  • TP documentation will need to be submitted within 30 days of request by the Israel Tax Authority (“ITA”), as is customary in other jurisdictions. The ITA asked for a shorter period, but we managed to argue before the committee that it should not fall below 30 days. In this regard, the ITA expects TP documentation to be in place and updated periodically, as the TP study serves as the basis for the annual Form 1385 filing;
  • In addition to the current requirements in the TP documentation, the following details have been raised as required in each TP study:
    • The ITA demanded that the names of the group’s senior executives appear in the study, we objected to the issue and this was rejected by the finance committee. A table describing higher level job descriptions will remain as part of the table of holdings and group/company structure, without the names. However, companies will also be required to specify the physical location of senior officials (in which country);
    • A list of entity competitors will be required;
    • A description of the main service agreements should be included.

Master file:

Master File Threshold: The Proposed Regulations required a zero threshold for Master File filing requirements. As mentioned, the Israeli Bar disagreed with the Israeli association CPA and the ITA regarding the income threshold. The finance committee decided that the threshold would be 150 million shekels, according to our suggestion, which is the current equivalent of about 43 million euros. Note that this requirement applies to an Israeli subsidiary even if the jurisdiction of the parent company does not require a master file;

• The master file template will follow the OECD master file template, however with some adjustments for Israeli companies, which broaden the reporting scope.

Country by country:

CbCR threshold: As mentioned, the CbCR threshold will be NIS 3.4 billion. We have requested that the ITA not be able to request CbCR for entities below this threshold, and the relevant changes will be made to the proposed amendments to the Ordinance and the Regulations.

The above is only a general description.