In February 2025, the Israeli Tax Authority published Circular 01/2025 on transfer pricing – Amendment 261 to the Income Tax Ordinance – Country-by-Country Report (hereinafter: CBCr). The purpose of this circular is to detail the obligations and requirements associated with the CBCr.
This article reviews the features of the CBCr and the obligations of Israeli companies in this context.
What is a CBCr report?
The Country-by-Country Report (or CBCr) was introduced as part of Action 13 of the OECD’s BEPS Project. In May 2016, an agreement was signed for the automatic exchange of information pertaining to the implementation of reporting by multinational groups through the submission of CBCr.
The report includes information on the distribution of income, taxes, and activities among the companies within a multinational group. The reporting obligation in most OECD countries began in the 2016 tax year. The threshold for reporting in most countries is similar – the group’s consolidated turnover exceeds €750 million (or its equivalent in local currency) and the Ultimate Parent Entity is a resident of that same country.
Israeli Regulations and CBCr Reporting Obligations
Under Israeli regulations, the obligation to submit a CBCr was introduced as part of Amendment 261 to the Income Tax Ordinance. In light of this amendment, certain entities are required to submit the CBCr in Israel.
Reporting Obligation – Who is Required to Submit the Report?
The obligation to submit the CBCr is detailed in Section 85C of the Ordinance and includes two cumulative conditions: the entity is part of a multinational group whose consolidated turnover in the year preceding the tax year was ₪3.4 billion (the NIS equivalent of €750 million) or more and the Ultimate Parent Entity is an Israeli resident.
The report can be submitted directly to the Israeli Tax Authority or through automatic information exchanges. The report must be submitted within 12 months of the end of the tax year of the Ultimate Parent Entity.
It is important to note that the threshold for submitting the report is stated in NIS. If the Ultimate Parent Entity reports in a currency other than NIS, the value of the turnover in NIS must be examined. The conversion to the NIS value can be done either by using the average exchange rate for the tax year or the average rate for the quarter. This means that the turnover might exceed €750 million but be less than ₪3.4 billion, and the company would not be obligated to submit the CBCr in Israel.
CBCr Submission in Israel
A multinational group that meets the conditions outlined above needs to submit the CBCr in Israel. However, the group can submit the report to another country if the Israeli Tax Authority approves that it meets three cumulative conditions:
- As of the date of submitting the application, there is a valid Competent Authority Agreement between Israel and the country where the report will be submitted.
- The group has notified the Israeli Tax Authority by the end of the tax year, via the Automatic Exchange of Information portal, about the reporting in another country.
- Proof must be provided within a year from the end of the tax year that the report has been submitted in the other country. This will be done via the Automatic Exchange of Information portal.
The report submitted in another country must reach the tax authority within 15 months from the end of the tax year. If the report has not arrived by this date, the final parent entity must submit the CBCr report in Israel.
Likewise, a group whose Ultimate Parent Entity is not a resident of Israel can submit the report in Israel. Of course, it is necessary to check the guidelines in the country of residence of the Ultimate Parent Entity to ensure compliance with the reporting requirements in that country.
There are several scenarios in which, even if the multinational group is not obligated to submit the report in Israel, the tax authority can require it to be submitted in Israel:
- In the country of residence of the final parent entity of the group, there is no obligation to submit a CBCr.
- As of the date of submitting the report, there is no Competent Authority Agreement between Israel and the country where the report was submitted, but there is an international agreement (as defined in the regulations).
- There is an agreement, but Israel knows there is a systematic issue with the country of residence of the Ultimate Parent Entity.
If one of the above conditions is met but the group has submitted the report in another country within the group, it will be exempt from submitting the report in Israel.
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FAQs
What is a final parent entity?
According to Section 85C(a), an entity that directly or indirectly holds the majority of control instruments of the group entities and no other entity holds such control.
How is a CBCr report submitted in Israel?
The report is submitted online via the Automatic Exchange of Information portal.
If the final parent entity of the group is Israeli and the transaction turnover is reported in dollars amounting to $800,000, is a CBCr report required to be submitted in Israel?
Not necessarily. The obligation to submit depends on the shekel value of the group’s transaction turnover. If the transaction turnover exceeds ₪3.4 billion – a CBCr report needs to be submitted in Israel. If the transaction turnover is below ₪3.4 billion – there is no obligation to submit a CBCr report in Israel.