Tax Alert No.35 10.11.2019
International taxation - Transfer pricing: What to declare to the Tax Authority – a new form in your tax return
Lately, the Israeli Tax Authority published a new form – Declaration of International Transaction that comes as an appendix to the annual tax return. The form serves the Tax Authority in identifying and addressing international transactions where related parties are involved. The form combines the Israeli tax legislation concerning transfer pricing and the Tax Authority’s circulars reflecting its position on the subject.
The Tax Authority previously published two income tax circulars on transfer pricing:
When filling out the new form, explicit indication of whether or not the circular applies is made by checking off one box from several options. By indicating that the circular applies, the taxpayer is exempt from the need to perform a full market survey. Accordingly, explicit indication is necessary showing whether the transaction price meets the terms of the circular as per the selected method (low value services, marketing services or distribution services) – this is a fixed list in which one box must be selected to indicate whether or not the instructions of the circular have been carried out. With regards to the transaction details, the following descriptions are required:
To sum things up – the standard of reporting, the reliance on the financial report and the responsibility of the person submitting the report has jumped up a level, in particular where the submitter must determine a priori for certain transactions whether or not the conditions of the circulars are met, a determination which is sometimes subject to interpretation.