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Transfer Pricing In Israel

The term "Transfer Pricing" relates to the terms determined in intercompany transactions such as sale of products, provision of services (marketing and distribution, management services, R&D services, etc.), financial transactions (such as intercompany loans), transfer of "know how", and the use of intangibles (such as the brand name of a company, its IP or its reputation).

Today, almost every country you can think of (including countries from South America, Eastern Europe and the Persian Gulf), has adopted transfer pricing regulations, or has adjudicated (through formal announcements or court decisions) the adoption of transfer pricing rules. 

Accordingly, transfer pricing is one of the main "targets" of tax authorities worldwide, and in some countries (such as Canada) is the most profitable tax division. Thus, each company in the group should hold proper documentation, which demonstrates to the applicable tax authorities that the transaction has been performed at arm's length, or explain why it has not.

According to section 85A of the Israeli Tax Ordinance and the Israeli Transfer Pricing regulations (which the law firm of Bar-Zvi & Ben-Dov assisted in shaping), transactions between related parties should be under fair market conditions. Furthermore, the Israeli Tax Authorities require that any entity involved in a transaction with related parties, sign a special compliance form in which it represents that it is acting in accordance with the Transfer Pricing regulations, i.e. holds an updated applicable transfer pricing study, and other required supporting documentation.

Similarly to other tax authorities, the Israeli Tax Authorities have established a special Transfer Pricing Unit, which is authorized to reopen any previously approved tax assessment and tax any transfer pricing related matters. Although the majority of transfer pricing transactions are between companies that operate in different countries, the tax authorities are also authorized to request (and do so in practice) full documentation of intercompany transactions performed within Israel.