Israel is a small but vibrant country located in the Middle East. Its strategic location, skilled workforce, and supportive business environment make it an attractive destination for multinational corporations (MNCs) looking to expand their operations. However, like many countries around the world, Israel has implemented Country-by-Country (CbC) Reporting requirements for MNCs to promote transparency and reduce the risk of tax avoidance.

In this blog post, we will provide an overview of the CbC Reporting process in Israel, including the regulations, laws, and requirements for MNCs operating in the country.

What is CbC Reporting?

CbC Reporting is a global initiative that requires MNCs to provide detailed information on their global operations, including profits, taxes paid, and other key financial metrics. The information is then shared with tax authorities in all countries where the MNC operates. The aim of CbC Reporting is to promote transparency and reduce the risk of tax avoidance by MNCs.

CbC Reporting Requirements in Israel

In Israel, CbC Reporting requirements are governed by the Tax Ordinance (New Version), 5721-1961. MNCs operating in Israel must provide CbC reports if they meet the following criteria:

• The MNC has consolidated group revenue of at least NIS 3 billion (approximately USD 890 million) in the previous fiscal year.
• The MNC is resident in Israel or has a permanent establishment in Israel.

If an MNC meets these criteria, it must submit a CbC report to the Israeli tax authorities within 12 months of the end of the reporting fiscal year.

The CbC report must include information on the MNC’s global operations, including the following:

• The names and tax identification numbers of all entities within the MNC’s group.
• The revenue, profit, taxes paid, and accumulated earnings of each entity within the group.
• The number of employees, tangible assets, and intangible assets of each entity within the group.
• The location of each entity within the group, including its country of residence, jurisdiction of incorporation, and main business activity.

The CbC report must be prepared in accordance with the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

Penalties for Non-Compliance

MNCs that fail to comply with CbC Reporting requirements in Israel may be subject to penalties. The Tax Ordinance (New Version), 5721-1961 provides for penalties of up to NIS 900,000 (approximately USD 260,000) for non-compliance.

In addition to penalties, non-compliance with CbC Reporting requirements in Israel may also result in tax audits and investigations by the Israeli tax authorities. MNCs may be required to provide additional information and documentation to support their transfer pricing practices and financial statements.

Conclusion

CbC Reporting is an essential part of tax compliance for MNCs operating in Israel. MNCs must ensure that they comply with the CbC Reporting requirements and provide accurate and comprehensive information in their CbC reports. Failure to comply with CbC Reporting requirements can result in significant penalties and audits.

Overall, MNCs operating in Israel must stay up to date with the latest CbC Reporting requirements and ensure that they comply with Israeli tax laws and regulations to avoid potential penalties and audits.