Worldwide transfer pricing reference guide 2014

Israel (continued)
Transfer pricing-specific returns
Refer to the return disclosures/related party disclosures section.
Frequency of tax audit and transfer pricing scrutiny by the tax authority
The likelihood of an annual tax audit in general is high. Traditionally, taxpayers operating in the international arena or subsidiaries of
foreign companies have higher likelihood of being audited.
The likelihood that transfer pricing will be reviewed as part of that audit is high, while the likelihood that the transfer pricing
methodology will be challenged in a transfer pricing review is moderate, if supported by robust transfer pricing documentation. When no
documentation exists, the methodology is more likely to be challenged.
The issues of transfer of IP and financial transactions, along with the recent circulars on the restructuring and the stock options expenses
as described above, are more likely to be challenged.
APA opportunity
Section 85A of the Israeli Income Tax Ordinance, governs the ITP Regulations, stipulates in Article 85A (d), the conditions under which an
APA may be concluded and delineates the scope of an APA. The process starts with a detailed application that includes all the relevant
details. Under the APA process, the ITA must respond to the taxpayer’s application within 120 days (though the time can be extended
up to 180 days); otherwise, the application will be approved automatically, and the intercompany policy will be deemed as providing
reasonable arm’s length prices. In practice, a complete APA procedure may take 12 months.
Expected reaction to OECD Report on BEPS
Until January 2014, the Israeli tax authority have not submitted any formal document regarding BEPS, however, in recent tax audits,
the ITA have focused on IP valuation, in light of the recent OECD’s draft on this issue.
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