A Precedential Judgment In The Matter Of Transfer Pricing Shuffles The Cards As To Granting Options To Employees.

 
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A judgment in the Kontera case was handed down two weeks ago in the District Court which dramatically changes the Cost Plus issues relevant to certain Israeli companies which provide services to a foreign related company. the judgment has an impact on the situation where the Israeli company's employees are granted options in the framework of Section 102 of the Income Tax Ordinance (capital track).

This judgment is the first in Israeli legal history on the topic of "transfer pricing" since Section 85a of the Income Tax Ordinance entered into force at the end of 2006. It shuffled the cards relating to the granting of options in respect of a company operating in the framework of the Cost Plus method as it pertains to the rules of transfer pricing.

The dispute that arose in this file between the Israeli company and between the assessing officer centered around the following questions: (1) should the value of the options be included as part of the Cost? (2) should the social contributions of the Israeli company to its employees be included in the Cost?

The District Court determined that in the framework of the Cost, both the value of the options and the social contributions should be included. We emphasize that this ruling of the court creates a negative and dramatic change for the company, the implication of which is higher and more substantial tax payments.

There is no doubt that this judgment will require new thinking and substantial and urgent changes in the transfer pricing method, which is used by every company operating under the Cost Plus framework, as well as any company required to implement the transfer price method.

Our offices would be happy to help and advise in this regard.

Several changes to tax laws that came into effect at the beginning of the year

Expanding the term of assessment limitation - the authority of an assessing officer was expanded to provide an amended assessment within 4 years from the end of the tax year in which the tax report was submitted (instead of 3 years until now).

The application of the reporting obligation on an opinion and taking a position contradicting the position of the Tax Authority - reporting obligations were legislated for taxpayers who receive a written opinion or take a position against the position of the Tax Authority, pursuant to several classifications, of which the principal ones are:

Opinion

An opinion offering the taxpayer a tax benefit.

The fee charged by the provider of the opinion is based on the...

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