In the third week of October, the District Court in Jerusalem
released its decision in connection with the – very tax
relevant – difference between a "loan" and a
"capital note", a hot topic also in the eyes of the
Israeli tax authorities in the arena of 'transfer pricing'
as also clearly stated in recent proposals for amendment and
expansion of transfer pricing legislation and regulations.
Loan or capital instrument; inclusion interest income or
not
A parent company in Israel – B Ltd – had provided
interest-free financing to foreign subsidiaries shaping the
commitments in what it believed to be "capital notes".
Financing provided by an Israeli company to a (domestic or foreign)
subsidiary which qualifies as a "capital note" releases
the creditor from having to report interest income in its annual
tax return in relation to the financing involved. Certain high risk
long term loans may qualify as a "capital notes" when the
principal is not linked to any index, does
