Israel Transfer Pricing Documentation Requirements
Israel requires a Local File from any taxpayer with cross-border related-party transactions and a Master File from groups above ILS 150 million in consolidated revenue. An annual transfer pricing form is attached to the tax return, and missing documentation leaves the burden of proof with the taxpayer.
Requirements at a glance
| Requirement | Threshold | Deadline | Deadline type | Language | Penalty |
|---|---|---|---|---|---|
Master File Required | Group consolidated revenue ≥ ILS 150m | By tax return filing date | Preparation deadline The documentation must exist by the date shown and is produced only when the tax authority requests it. Once requested, it must be provided within 30 days. | EN | Burden of proof not transferred; transaction results may be challenged |
Local File Required | All taxpayers with cross-border related-party transactions | By tax return filing date | Preparation deadline The documentation must exist by the date shown and is produced only when the tax authority requests it. Once requested, it must be provided within 30 days. | EN | Burden of proof not transferred; transaction results may be challenged |
Form 1385 TP declaration
Annual filing | Taxpayers with international related-party transactions | With the tax return | Submission deadline The documentation must be filed with the tax authority by the date shown. | EN | Yes |
CbC report Required | Group revenue ≥ ILS 3,400m | 12 months after fiscal year-end | Submission deadline The Country-by-Country report is filed by the group's ultimate parent entity; a local notification identifying the reporting entity is filed separately. | — | Yes |
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Scope of the documentation obligation
The Local File obligation in Israel is not gated by a size threshold. Any taxpayer with cross-border related-party transactions is expected to hold a Local File, while the Master File applies to groups with consolidated revenue of at least ILS 150 million. The documentation is held available by the return filing date and produced within 30 days of a request, a window that was reduced from its previous length.
Distinctive features of the Israeli regime
Two features distinguish the Israeli regime. The first is the burden-of-proof mechanism that operates in place of a fixed monetary penalty: where appropriate documentation is not submitted, the burden of proof does not pass to the tax authority, so the taxpayer must positively defend its pricing, and the transaction results may be challenged. The second is Form 1385, an annual transfer pricing declaration attached to the tax return on which the taxpayer describes each international intercompany transaction, identifies the counterparty and its residence, and signs a declaration that the transaction was conducted at arm’s length. Israel also publishes safe harbours, including a 5 percent mark-up on total costs for low-level services and a 10 to 12 percent range for qualifying marketing services.
Benchmarking and comparables
There is a benchmarking expectation that local Israeli comparables be sought, with the tax authority expecting evidence of an effort to find them. A single-year analysis of the tested party is compared against three years of comparable data. The annual signature requirement on Form 1385 effectively requires that a fresh benchmarking study or financial update be performed each year, since the at-arm’s-length declaration must be made for every international intercompany transaction. The general limitation period is three years from the end of the year in which the return was filed, extendable to four.
Frequently asked questions
Is there a size threshold for the Israeli Local File?
No. Any taxpayer with cross-border related-party transactions is expected to hold a Local File. The ILS 150 million threshold applies only to the Master File.
What happens if Israeli documentation is not provided?
The burden of proof does not pass to the tax authority. The taxpayer must positively defend its pricing, and the transaction results may be challenged on that basis.
This guide is an informational research aid prepared by Comp-Press and is not tax or legal advice. Transfer pricing rules change; verify current requirements before relying on them for filing.