Country By Country Reports

On December 8, 2022, the Senior Deputy Director of the Israeli Tax Authority (ITA), Mr Roland Am-Shalem issued guidance on preparing for Country by Country (CbC) reports by large multinational groups.

This followed new tax regulations of September 20 which expanded the transfer pricing reporting requirements in Israel for medium-large multinational groups with entities in Israel and global revenues over NIS 150 million (Income Tax Regulations (Determining Market Conditions)(Amendment) 2022, KT 10339, 22.9 2022).

What’s so important about CbC reports?

Until recently the ITA has been cruising along with a big blackspot in their vision. Suppose a foreign company records a profit of NIS 1 million in Israel and NIS 1 trillion in a sunny offshore island. How will the ITA ever know the NIS 1 trillion is out there in the offshore location? The answer lies in the CbC reports which will soon but belatedly be required in Israel. CbC reports will give the ITA eyes to see round the world what activities a multinational group has.

Under the OECD’s pronouncement called BEPS Action 13, large multinational enterprises (MNEs) are required to prepare a country-by-country (CbC) report with aggregate data on the global allocation of income, profit, taxes paid and economic activity among tax jurisdictions in which it operates. BEPS is short for Base Erosion and Profit Shifting.

The CbC report is shared with tax administrations in these jurisdictions, for use in high level transfer pricing and BEPS risk assessments.

So if there are many employees in Israel and few in the offshore island, the CbC report will show this to the ITA who may then have some questions.

The ITA’s questions are likely to focus on transfer pricing. Transfer pricing is a knotty subject for many multinational groups and many tax authorities. The goal is to ensure that intercompany transactions are done on an arm’s length basis, i.e. applying market prices and terms, no shenanigans. In Israel, transfer pricing studies are already required by law, so is an arm’s length declaration (Form 1385).

Latest ITA CbC guidance:

The ITA points out that in 2016 the Director of the ITA signed an automatic information exchange agreement with the OECD preparing the way for CbC reports, but had to wait until July 2022 for the above regulations giving Knesset authority to demand CbC reports in Israel. Israeli multinational groups, with an Israeli ultimate parent entity (UPE) and with annual revenues over NIS 3.4 billion are covered in principle by the CbC requirement, in XML electronic format, starting with 2022. These reports will be shared with other countries. They may choose to file the CbC  reports in another country which would then share the report with ITA. Israeli UPEs may choose to file a CbC report for 2021, but the ITA guidance does not appear to give a reason why a UPE should choose this.

As for Israeli companies in foreign multinational groups, with a foreign UPE, they will be required to tell the ITA in which country they filed a CbC report, filling in Tax Form 1585. These filing are to be made both online and to a designated email address, [email protected].

Other Transfer pricing changes this year:

Transfer pricing studies must now be filed within 30 days after any request from the ITA, instead of 60 days previously.

Israeli Tax Form 1385 was recently expanded administratively into an OECD Local File to require a listing of every intercompany transaction with Israeli entities, including: description, amount, pricing method, level of profitability and whether any safe harbor contained in Tax Circular 12/2018 was applied.

If group revenues exceeded NIS 150 million  in the preceding year, an Israeli entity must add to its transfer pricing study a report corresponding to the OECD Master File covering various macro aspects of the group


Israeli ultimate parent entities with revenues over NIS 3.4 bn must file CbC reports for 2021 by March 31, 2023.


Many countries, including the US, EU and Israel (sometimes) now impose sales tax or VAT if you sell to consumers in their country, sometimes income tax too. This will enormously complicate transfer pricing studies in our view. Specialist advice is recommended.

Next Steps:

Please contact us to discuss any of the above matters further, or any other matter.

As always, consult experienced legal and tax advisors in each country at an early stage in specific cases.

(c) Leon Harris 21.12.22

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