Change Of A Business Model In Multinational Groups

This is an important update for multinational groups with business activities or affiliates in Israel, and is particularly relevant for groups contemplating a change of their business model affecting Israeli subsidiaries or the purchase of an Israeli company.
 

1. Background

1. The Israel Tax Authority (the "ITA") published a comprehensive circular, number 15/2018 (the "Circular"), addressing the Israeli income tax aspects of business model restructuring by multinational groups.  A change of a business model refers mainly to circumstances under which functions, assets or risks (so called "FAR") of an entity are transferred or terminated.

1. This matter is commonly raised in tax audits of Israeli companies that are acquired by multinational groups, and following the closing of the acquisition, the intellectual property ("IP")  of the Israeli acquired company is transferred, or deemed transferred, to a non-Israeli affiliate, or the entrepreneurial aspects of