Israel: Country-by-country reporting, transfer pricing documentation in budget plan

Israel: CbC reporting in budget plan

The Israeli government on 12 August 2016 approved the Ministry of Finance’s budget plan for 2017-2018 that includes tax legislative measures that the Israeli government is planning to introduce in the bi-annual budget proposal. Among the tax provisions are measures for country-by-country reporting and transfer pricing documentation requirements.

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The budget plan [Hebrew] [PDF 1.95 MB] and the related tax measures are pending approval by the Knesset (Israel’s legislature). The following brief description provides a high-level overview of the country-by-country reporting and transfer pricing documentation measures in the budget plan.

CbC reporting

The budget plan sets out country-by-country (CbC) reporting requirements that generally would be in line with OECD base erosion and profit shifting (BEPS) Action 13 recommendations. These CbC rules would apply to a multinational enterprise (MNE) group that has total group revenue in excess of NIS 3.4 billion (approximately €799 million).

Specifically, the budget plan provides for the following general CbC rules:

  • The ultimate parent entity of an MNE group would be required to file a CbC report if it is a tax resident of Israel for the fiscal year. 
  • However, an ultimate parent entity may be exempt from filing a CbC report, if such report has been filed by another member of the MNE group. 
  • The CbC report would be filed electronically (online) within a year as of the end of the fiscal year.

The budget plan also provides, as a general requirement, that any taxpayer that is affiliated with an MNE group would have to certify its status as a group member to the tax authority.

Transfer pricing documentation

The budget plan also contemplates the imposition of transfer pricing documentation and recordkeeping requirements on any taxpayer that belongs to an MNE group, or that has engaged in a related-party cross-border transaction. The provisions concerning transfer pricing refer to a transaction under section 85A of Israel’s Income Tax Ordinance or law (section 85A is the primary legislative provision on transfer pricing, and generally its application is limited to related-party cross-border transactions).

Upon demand, the taxpayer would be required to furnish to the tax authority:

  • Documents and data subject to the documentation and recordkeeping requirements 
  • Documents and data relating to the MNE group 
  • All documentation and data relating to either a related-party cross-border transaction, a foreign resident that is party to such transaction(s), or any entity that is affiliated with the MNE group to which a party to such transaction(s) belongs 
  • The transfer pricing method applied for purposes of such transaction(s)    

 

For more information, contact a KPMG tax professional:

Tal Karni | +1 (267) 256 4593 | tkarni@kpmg.com

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