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July 15, 2022

Israel adopts BEPS Action 13 principles

  • Israel has enacted legislation to align its transfer pricing rules with BEPS Action 13 requirements (Local File, Master File, and Country-by-Country Reporting).

  • Under the new rules, certain taxpayers will have increased transfer pricing reporting and documentation obligations as outlined in this Alert.

  • Multinational enterprises should carefully review this amendment to assess its impact on their transfer pricing reporting and documentation obligations in Israel and consider necessary actions and alignment.

Executive summary

On 30 June 2022, the Israeli Parliament passed legislation (a draft bill presented in October 2020[i]) to amend Section 85A of the Income Tax Ordinance (ITO) and its regulations, by introducing substantial changes to the current transfer pricing (TP) reporting and documentation obligations of multinational enterprises (MNEs) in Israel.

The new legislation, which entered into force on 5 July 2022 (upon its publication), adopts and incorporates the principles of the Organisation for Economic Co-operation and Development's Base Erosion and Profit Shifting (BEPS) Action 13, that introduced requirements for a Local File, Master File, and a Country-by-Country (CbC) report, where applicable. Accordingly, the amendment establishes rules for TP documentation, to be prepared annually, with extensive and far-reaching disclosure requirements.

Multinationals with Israeli activity should carefully review the new legislation and assess their readiness and alignment with the new Israeli TP requirements to be better positioned in a potential audit, and to avoid penalties for noncompliance with TP rules and regulations.

Detailed discussion

As one of its final acts before the decision to dissolve (which is the act that starts the countdown towards new elections), the Israeli Parliament passed legislation to amend the ITO and adjust the Israeli TP compliance and reporting requirements to align with BEPS Action 13 principles.

The following are the main legislative amendments that were introduced into the Israeli TP rules and pending regulations (which are expected to be published within the next couple of months):

  • New Section 85B of the ITO and regulations are introduced to stipulate TP documentation obligations that should be prepared for each international transaction (save for certain de-minimis cases), in order to be provided to the tax assessing officer upon request (within approx. three weeks, pending the final regs). This is in contrast to the current rule, that requires the taxpayer to provide the tax assessing officer with TP documentation only within 60 days from his request.

  • For an Israeli taxpayer who is a member of an MNE whose turnover exceeds NIS150 million, the expected regulations will include a similar requirement for the preparation of a report on the group's activities (Master File).

  • New Section 85C would set forth the obligation of an ultimate parent entity (UPE) that is a resident of Israel, whose turnover exceeds NIS3.4 billion (or a lower threshold if stipulated so by the Minister of Finance), to declare and submit a CbC report on the group and its activities in each jurisdiction. The obligation to file applies for every tax year, within one year from the end of the tax year. This report will be submitted online by the UPE and will be automatically shared with the tax authorities of the signatory countries to the Tax Information Exchange Agreements. The said report may also be required from companies that are not UPEs, depending on the ITA’s ability to receive such information under these agreements.

Summary of major changes

The draft legislation would require:

  • A taxpayer who is part of an MNE or a party to an international transaction is to prepare a detailed Local File and a Master File on the MNE’s global activities.

  • The submission timeframe is now shortened from 60 days upon request to 21 days (pending final regs).

  • Significantly more information regarding its local activity and the intercompany transactions to which it is a party, and on the activity of the group of which it is a part.

  • Taxpayers whose UPE is a resident of Israel and whose global turnover exceeds NIS3.4 billion are to submit an online report within one year from the end of the tax year, that includes a comprehensive disclosure on all of the group's entities.

As only compliance with all of the draft legislation requirements will shift the burden of proof from the taxpayer to the tax assessing officer, it in practice places a much higher burden on the taxpayer than in the current status and anchors the ITA’s position on the burden of proof as presented in tax circular 1/2020[ii] within the language of the law.


The purpose of the TP legislation is to enable the ITA to obtain more information on MNEs’ Israeli and global operations, and to meet its obligations under international agreements to implement certain reporting obligations and share information with tax authorities worldwide.

Due to the broad implications of this legislation, and the immediate impact it has and will have once the regulations are final, MNEs should carefully review this amendment to assess its impact on their TP reporting and documentation in Israel and consider necessary actions and alignment.


For additional information with respect to this Alert, please contact the following:

EY Israel, Tel Aviv

Ernst & Young LLP, Israel Tax Desk, New York



  1. See EY Global Tax Alert, Israel’s Tax Authority releases draft bill to significantly amend transfer pricing rules and regulations, dated 16 October 2020.

  2. See EY Global Tax Alert, Israel’s Tax Authority Releases Tax Circular on Burden of Proof Related to Transfer Pricing Audits, dated 5 June 2020.


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