Worldwide transfer pricing reference guide 2014

Israel (continued)
Priorities/pricing methods (continued)
Additionally, the ITP Regulations stipulate the use of several profit level indicators (PLIs), depending on the particular industry and
environment. For example, when appropriate, the following PLIs may apply:
• A cost plus mark-up may be applied to a company’s direct costs
• A gross profit margin may be applied
• The operating profit or loss applicable for comparable transactions
• The profit or loss derived as a proportion of the firm’s assets, liabilities or capital
• ►Other measures considered appropriate under the circumstances
Transfer pricing penalties
The ITA has not specified any penalties with regards to its transfer pricing regulations. However, general tax penalties applied by the ITA,
with regards to a tax deficit, will also apply on transfer pricing adjustments. In addition, false declaration on form #1385 may expose the
signing officer to criminal charges.
Penalty relief
There is no penalty relief regime applicable in Israel.
Documentation requirements
A taxpayer is required to file a transfer pricing report with the Tax Assessing Officer, at the Tax Assessing Officer’s request, within 60
days from the application date. Documentation must include the following data:
• Taxpayer’s group structure, the parties to the international transaction, their residency and any special relations between the taxpayer
and the other parties
• ►The contractual terms, including specifications of the asset, the service granted, the price paid, the loan and credit terms and related
guarantees
• The taxpayer’s area of activity and any relevant developments
• The economic environment in which the taxpayer operates and the related risks
• Details of all transactions entered into by the taxpayer with a related party
• An economic analysis
The taxpayer is also required to attach additional documents that corroborate the data submitted, such as transaction contracts and any
other contracts between the related parties and tax returns filed with foreign taxing authorities.
Documentation deadlines
Taxpayers in Israel must provide documentation within 60 days of a tax assessing officer’s request.
Statute of limitations on transfer pricing assessments
The Israeli Income Tax Ordinance has general rules for auditing a tax return. As such, the statute of limitations is usually three years
(or four if the commissionaire extends the time period), beginning at the end of the fiscal year in which the tax return was filed.
Return disclosures/related party disclosures
Commencing with the fiscal year ending 2007, taxpayers must attach to the annual tax returns a specific transfer pricing form (# 1385),
in which the following should be disclosed:
• A short description of the intercompany transaction details of the other party and its residency
• Transactions’ volume
• Signatures on all declarations (forms) that the international transactions were conducted at arm’s length
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