Israel

Market overview

The BEPS Project has been the main transfer pricing topic this year, especially where the Israeli government is taking actions to implement some of the recommendations given by the OECD.

Multinationals in Israel have started examining their intercompany arrangements with the new standards in mind to evaluate what changes are required. "This could relate to intercompany models the BEPS Project is targeting, such as the commissionaire and marketing support arrangements, or to models that may require a different pricing method that could significantly change the multinationals effective tax rate," said Guy Attias, head of transfer pricing at Deloitte in Israel.

One of the immediate impacts from BEPS in Israel is an update to the transfer pricing documentation rules. Israel has announced that they will adopt country-by-country reporting (CbCR) which has resulted in multinationals hastening to make the appropriate preparations.

The Israeli authorities are focusing on the substance over form concept, a core component driving the OECD BEPS Project, even before the general BEPS rules are formally adopted. "When auditing inbound and outbound intercompany transactions, they are focusing on value creation and on the location of the people aspect of the audited multinational," said Eyal Bar-Zvi of Herzog Fox and Neeman.

The pressure from the tax authorities has become stronger and it is expected that the government officials will carefully scrutinise transfer pricing issues in the coming year. "Taxpayers should be more careful," said Daniel Paserman of Gornitzky & Co.


Tax authorities

Income Tax Office
66 Kanfei Nesharim Street
Jerusalem
Tel: +972 2 654 5111; +972 2 654 5415
Fax: +972 2 654 5183; +972 2 654 5413

Department of Customs and VAT
5 Bank of Israel St
Government Complex POB 320
Jerusalem 91002
Tel: +972 2 666 4000
Fax: +972 2 666 4011
Email: taxes@mof.gov.il
Website: taxes.gov.il; ozar.mof.gov.il


Tax rates at a glance

(As of January 1 2016)

Corporate income tax rate 25% (a)
Capital gains tax rates 25% (a)
Branch tax rate 25% (a)
 
Withholding tax
Dividends 0/15/20/25/30% (b)(c)
Interest 0/25% (a)(b)(d)(e)
Royalties from patents, know how, etc. 25% (a)(b)(d)
Branch-remittance tax n.a.
 
Net operating losses (years)
Carryback 0
Carryforward Unlimited

  1. This is the regular company tax rate for profits and real capital gains. Reduced rates of company tax are available in accordance with the Capital Investment Encouragement Law
  2. The withholding tax may be reduced by applicable tax treaties.
  3. The 0% rate generally applies to distributions to Israeli parent companies. In addition, reduced withholding tax rates of 15% and 20% may apply under the Capital Investment Encouragement Law.
  4. In principle, the withholding taxes on interest and royalties are not final taxes.
  5. Interest paid to non-residents on Israeli corporate bonds registered for trading on the Tel-Aviv Stock Exchange is exempt. In general, interest paid to non-residents on Israeli governmental bonds is exempt. However, interest on short-term bonds (issued for 13 months or less) is taxable.

Source: EY 2016 Worldwide Corporate Tax Guide