Media Centre

Israeli Parliament Discusses Master File and CbCR implementation

14 March 2022

On 9 March 2022, our firm participated on behalf of the Israeli Bar in a discussion held in the Finance Committee of the Knesset (the Israeli Parliament) with respect to the amendment of the Israeli Tax Ordinance (the “Ordinance”), as well as to the Israeli transfer pricing regulations (the “Regulations”), specifically regarding the implementation the Master File and Country by Country Report (CbCR) concepts and reporting obligations in Israel.

The discussion at the Finance Committee, included inter alia the following key points:

• Authorization to Amend the Legislation: Changes in the Regulations, specifically concerning Master File and CbCR, will be regulated by the Minister of Finance, subject to the approval of the Finance Committee;

• CbC Reporting: CbCR concepts and reporting obligations will be in line with other OECD member countries. In this regard, the group revenue threshold remains at Euro 750 million, as of the exchange rate of January 2015, as described in the OECD Guidelines, i.e. approximately NIS 3.4 billion. As of today, due to fluctuations in the exchange rate, the equivalent of NIS 3.4 billion is approximately 1 billion Euro;

• Master File Threshold: The draft Regulations required a zero threshold on the Master File filing requirements. The Israeli Bar, represented by our Head of Transfer Pricing, Adv. (Economist) Eyal Bar-Zvi, is pushing for a balance sheet threshold of NIS 200 million, the current equivalent of Euro ~56 million, however the Israeli CPA association and the Israeli Tax Authorities are requesting a lower group revenue threshold and thus the Finance Committee will convene again to discuss this matter in the coming weeks.

• Master File Applicability: The forthcoming Master File discussion will also include decisions on if Master File and CbCR obligations should be introduced retroactively or only going forward – it is not yet clear how far back the Finance Committee may want to retroactively request documentation, should that be the outcome. It appears that CbCR will apply as of FYE 2021, with the Master File to apply as of FYE 2022.

Additional topics covered in the Knesset’s Finance Committee meeting included:

• Client/Attorney Privilege

While the current draft amendments of the Ordinance and Regulations do not focus on client/attorney privilege, it is important to note:

1. Under general Israeli legislation, a client normally enjoys a client/attorney privilege (but discussion and correspondence with other professionals do not normally enjoy such protection);

2. The current draft does not cover whether a foreign privilege enjoyed by a group company may be reflected in Israel;

• Criminal Aspects

​The draft states that non-compliance with the filing requirements will lead to a breach of section 131 of the Ordinance which may result in criminal offences penalized by a range of sanctions, from fine, interest payments and other penalties. This matter is being discussed by the Israeli Bar with the Ministry of Justice;

• Authorization to Request Documents

The draft Regulations grants the tax offices authorization to request information and documentation of related parties that do not necessarily transact with the group’s Israeli entity. We have objected to this during the discussion in the Finance Committee and the matter will be reassessed in upcoming deliberations with the Israeli Tax Authorities in front of the Finance Committee.

We will continue to provide you with updates on any developments.

The Tax Department
Herzog Fox & Neeman

Meir Linzen | Chairman
Chairman of the firm and Head of Tax Department
Eyal Bar-Zvi | Partner
Head of Transfer Pricing
Tax Department
Dr. Yuval Navot | Partner 
Tax Department
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