And trust me, you should very much care.
If you own and operate a legal entity in Israel and abroad, you need to pay attention to this current trend with Israel's Tax Authority (ITA).
For years, Israelis who own two registered businesses operating in BOTH Israel AND abroad have been ignoring the ITA's directives relating to Transfer Pricing – but no longer.
Again, this post concerns someone who owns businesses (even partially) in Israel AND abroad. If you only own one entity, even if it operates internationally, this post isn't for you.
If you have two companies in two different countries, which transfer money to each other, the Tax Authorities of the registered countries can theoretically say:
“We feel that you are not charging your company honestly for your services to artificially lower your profits in our country so as to pay less tax here.”
There is some logic here. Because you are your own client, when transferring money between your different companies, normal market conditions don't apply. You can charge yourself whatever you want, and no one is going to stop you.
The international tax profession of Transfer Pricing comes along to apply internationally recognized considerations and market prices to advise you exactly how much should be transferred between your companies. Thereby, protecting you.
While the ITA created stronger rules regarding Transfer Pricing back in 2023, they are only now making waves about it. And they are doing it BIG TIME. A large accounting firm I'm working with is currently dealing with 6 cases where the ITA suddenly woke up without warning to scrutinize issues surrounding Transfer Pricing.
IMPORTANT: You are susceptible to Transfer Pricing guidelines if you are transferring money internationally between companies owned by yourself OR FIRST-DEGREE RELATIVES. If you think this applies to you – SPEAK TO YOUR ACCOUNTANT.
If international guidelines and accountants are making you dizzy, then perhaps you would benefit from a financial translator and gatekeeper? Our firm plays this role with a number of our clients, managing communication between the various accountants and government ministries to ensure that our clients are both in-the-know and compliant.
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