OrdinanceTax Law
Income Tax Ordinance [New Version]
פקודת מס הכנסה [נוסח חדש]
Published: 1961-04-25Last amended 2026-06-08✓ Amendment status checked against the Knesset legislation record on 2026-09-04
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Chapter VI: Special Transactions
Interpretation§
82.
(a)"assignment", for the purposes of sections 83, 84 and 86 – including a conveyance, contract, agreement, arrangement or transfer of assets.
(b)Nothing in sections 83 and 84 is intended to prevent, in cases to which those sections do not apply, income derived by virtue of an assignment from being treated, for tax purposes, as if it were the income of the assignor.
Assignment for the Benefit of Young Persons§
83.
Where income is payable to a person or for that person's benefit in a given tax year by virtue of, or in consequence of, an assignment made during the lifetime of the assignor and the assignor is still alive, and at the commencement of that tax year that person had not yet reached the age of 20 and was not married – that income shall be treated, for the purposes of this Ordinance, as if it were the income of the assignor for that tax year and not the income of another; and it is immaterial for this purpose whether the income is payable directly or indirectly, whether to the person or for that person's benefit, whether in the present or in the future, whether it is payable after the fulfilment of a condition or after a specified event the occurrence of which is uncertain, or as a result of a person's exercise of an authority or discretion conferred upon that person, or in any other manner, and whether it is income that under Chapter V is regarded as having been received by that person as aforesaid.
Revocable Assignment§
84.
(a)Where income is payable to a person in any tax year by virtue of, or in consequence of, a revocable assignment, whether made before or after the commencement of this Ordinance, as well as income as aforesaid that under Chapter V is regarded as having been received by that person – it shall be treated, for the purposes of this Ordinance, as if it were the income of the assignor in that year and not the income of another.
(b)For the purposes of subsection (a), an assignment shall be regarded as revocable if it contains a provision for the transfer or return of the income, or of the asset from which it derives, to the assignor or to the assignor's spouse, whether directly or indirectly, or if the assignor or the assignor's spouse has, directly or indirectly, in any manner whatsoever, the power to obtain or resume control, directly or indirectly, over the income or the asset from which it derives.
Valuation of Trading Stock in Certain Cases§
85.
(a)In computing the earnings or profits from a business for the purposes of this Ordinance, trading stock that belonged to that business in the following cases shall be regarded as having been sold at the value amount:
(1)trading stock belonging to the business at the time it was discontinued or transferred;
(2)trading stock that was removed or transferred from the business without consideration or without full consideration, as well as trading stock in a business that was converted into a fixed asset of that business.
(b)For the purposes of sections 21 and 88, in respect of trading stock converted into a fixed asset and regarded as sold as provided in subsection (a), the value amount shall be the original price.
(c)In this section –
"trading stock" – any asset, whether movable property or real property, sold in the ordinary course of business, or that would have been so sold had it matured or reached completion of production, preparation or construction, and any material used in the production, preparation or construction of such an asset;
"business" – including part of a business;
"value amount" – the amount that could have been obtained for the trading stock from a willing seller to a willing buyer free of any charge (security interest) securing a debt, mortgage, or other right securing payment; however, if the assessing officer is satisfied that the price for the stock was determined in good faith without being influenced directly or indirectly by the existence of a special relationship between the seller and the buyer – and in the case of real property also on condition that the sale was made in writing – the value amount shall be the price so determined.
(d)
(1)Notwithstanding the provisions of subsection (a)(2), the following trading stock shall be regarded as sold at cost:
(a)a building converted into a building for rent or into an institutional rental building as defined in section 53a of the Capital Investment Encouragement Law, 5719-1959 (hereafter in this subsection – the Encouragement Law);
(b)a plot included in an approved plan under the Encouragement Law for the purpose of constructing a building for rent or an institutional rental building as defined in section 53a of that Law, on which such a building for rent or institutional rental building, respectively, was constructed;
(c)a building or plot as referred to in sub-paragraphs (a) or (b) that was transferred to the ownership of a company all of whose members are all the owners of the business in a manner that confers upon them rights in the asset equivalent to their rights in the business, if the transfer to the company was in accordance with the requirement of the Investment Centre administration within the meaning of the Encouragement Law;
(2)A building, or a plot on which a building was erected, to which the provisions of paragraph (1) were applied and which was subsequently sold, in whole or in part, by the person who received it in the circumstances referred to therein, and to the sale of which the Land Taxation Law, or section 4 of the Income Tax Law (Encouragement of Apartment Rental) (Temporary Provision and Law Amendments), 5741-1981, or Chapter VII 1 of the Encouragement Law applies, the date of acquisition and the acquisition value in the hands of the seller for the purposes of those Laws shall be the date and value that would have been determined had the asset been sold by the person who transferred it to the seller; for this purpose, "building" – even if its construction has not yet been completed.
(e)
(1)In determining the taxable income of a diamond dealer, trading stock shall be measured at cost; the Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe the manner of measuring the cost of stock, and may likewise prescribe in that manner, for types of diamonds, subject to conditions and in accordance with provisions to be prescribed, that trading stock shall be measured otherwise than at cost, and the manner of such measurement;
(2)In this subsection –
"diamond dealer" – a person whose business, or part of whose business, is the processing of diamonds, trade in diamonds or brokerage in diamonds;
"diamond" – including a precious stone of the type of ruby, emerald or sapphire, or another precious stone prescribed by the Minister of Finance for this purpose by Order, with the approval of the Finance Committee of the Knesset;
"processing" – including polishing, sawing, cutting, cleaving, cleaning and sorting.
Transfer Pricing in an International Transaction§
85a.
(a)In an international transaction in which special relations exist between the parties to the transaction by reason of which a price was set for an asset, right, service or credit, or other conditions of the transaction were set, in such a manner that less profit was derived therefrom than would have been derived in the circumstances of the matter had the price or conditions been set between parties between whom no special relations exist (hereinafter – arm's length conditions), the transaction shall be reported in accordance with arm's length conditions and shall be taxed accordingly.
(b)For the purposes of this section and sections 85b and 85c –
"means of control" and "together with another" – as defined in section 88;
"credit" – including any debt;
"special relations" – including relations between a person and their relative, as well as control by one party to the transaction over the other, or control by one person over the parties to the transaction, directly or indirectly, alone or together with another;
"entity" – a body of persons, including a business unit of a body of persons in respect of which separate financial statements are prepared;
"multinational group" – a group comprising two or more entities in respect of which both of the following apply:
(1)at least one of them is a foreign resident;
(2)one of them holds, directly or indirectly, means of control in each of the other entities, such that one of the following applies to them:
(a)special relations exist between them;
(b)under generally accepted accounting principles or under the law applicable to them, they were required to prepare consolidated financial statements, or would have been required to do so had one of them been traded on a stock exchange;
"control" – holding, directly or indirectly, 50% or more of one of the means of control on at least one day in the tax year;
"relative" – as defined in section 76(d).
(c)
(1)A taxpayer shall be required to furnish to the assessing officer, upon demand, all documents and data in their possession relating to the transaction or to a party to the transaction who is a foreign resident, as well as the manner of determining the price of the transaction;
(2)Where the taxpayer has provided documents as referred to in paragraph (1) and documents prescribed pursuant to subsection (e), the burden of proof shall apply to the assessing officer if the assessing officer has made determinations that differ from the agreements between the parties.
(d)
(1)A party to a transaction may apply to the Director, and request advance approval that the price of a particular transaction or series of similar transactions, as agreed between the parties between whom special relations exist, is in accordance with arm's length conditions;
(2)The application shall include all material facts and particulars relating to the transaction and to the manner of determining its price, and documents, approvals, expert opinions, declarations, assessments, the transaction agreement or a draft thereof, and any other document or particular, shall be attached thereto, all as the Director shall prescribe by rules;
(3)The Director may require any additional document or particular that appears to the Director to be necessary for the purposes of the Director's decision on the application;
(4)The Director shall notify the Director's decision and reasons within 120 days from the day the application and all documents referred to in sub-paragraphs (2) and (3) were received by the Director; however, the Director may, for reasons that shall be recorded, extend the said period to 180 days, provided that the Director notified the applicant of the extension before the expiry of the original period;
(5)If the Director has not responded to the application within the period prescribed in sub-paragraph (4), this shall be deemed prima facie approval that the transaction was carried out under arm's length conditions.
(e)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe:
(1)in respect of all taxpayers or categories of taxpayers, methods and approaches for recognising the price of a transaction or its conditions as a market price or arm's length conditions, as the case may be, as well as provisions regarding the attribution of income, expenses, deductions, credits and exemptions, all in cases to which the provisions of subsection (a) apply;
(2)the setting of an application fee for approval as referred to in subsection (d) in an amount to be prescribed, and the Minister may prescribe that the fee shall be at a rate of the value of the transaction;
(3)provisions regarding reports and documents to be submitted to the assessing officer, and provisions for registration and documentation.
(e1)
(1)The Director may prescribe by rules that provisions prescribed pursuant to subsection (e), in whole or in part, shall not apply to an international transaction, under conditions to be prescribed, if both of the following apply to it:
(a)the transaction is a one-off transaction or the scope of the transaction is small;
(b)the concern that the price of the transaction was set otherwise than under arm's length conditions in the said circumstances does not justify the application of the said provisions;
(2)A transaction in respect of which that stated in paragraph (1) applies shall be reported as if the price or conditions, as the case may be, were set between parties between whom no special relations exist.
(f)
(1)The provisions of this section shall not apply to a loan that is one of the following:
(a)a loan in respect of which all of the following apply:
(1)the borrower is a body of persons controlled by the lender;
(2)the loan is not linked to any index and does not bear any interest or return; for this purpose, the rate of currency shall not be regarded as an index, in respect of a loan granted in the currency of the state of residence of the borrower;
(3)the loan is not repayable before the end of a period of five years from the date it was granted;
(4)repayment of the loan is deferred in favour of other obligations and takes precedence only over distribution of assets to shareholders in a winding-up;
(b)a capital note or debenture issued by a body of persons, under the conditions prescribed in paragraph (5) of the definition "fixed assets" in Schedule B to the Inflation Adjustments Law, until the 28th of Adar Aleph 5768 (5 March 2008), that were a fixed asset in the hands of the lender on the 22nd of Tevet 5768 (31 December 2007), or that were a fixed asset in the lender's hands at a date falling in the period from the 23rd of Tevet 5768 (1 January 2008) to the 28th of Adar Aleph 5768 (5 March 2008), had the provisions of the Inflation Adjustments Law been applicable in respect of that period;
(2)Notwithstanding that stated pursuant to this Ordinance, an amount arising from a change in the rate of foreign currency in an international transaction that is a loan as referred to in paragraph (1), granted in the currency of the state of residence of the borrower, shall be taken into account only at the time of repayment of the loan and the provisions of Part 5 shall apply thereto; for this purpose, the amount of the loan as granted, translated into new shekels at the representative rate of the currency of the state of residence of the borrower on the date the loan was granted, shall be regarded as the original cost as defined in section 88, and the amount of repayment of the loan, translated into new shekels at the representative rate of the said currency on the date of repayment of the loan, shall be regarded as consideration as defined in section 88;
(3)In this subsection, "currency of the state of residence" – including the United States dollar or the euro.
Documentation Obligations in respect of a Multinational Group§
85b.
(a)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe, in respect of all taxpayers or categories of taxpayers, provisions regarding registration and documentation and provisions regarding reports, documents and data to be submitted to the assessing officer, which shall apply to a taxpayer belonging to a multinational group.
(b)A taxpayer as referred to in subsection (a) shall furnish to the assessing officer, upon demand, reports, documents and data as referred to in that subsection.
(c)Where the taxpayer has provided reports, documents or data as required under subsection (b), the burden of proof shall apply to the assessing officer if the assessing officer has made determinations that differ from the agreements between the parties.
Reporting by a Parent Entity in a Multinational Group§
85c.
(a)In this section, "ultimate parent entity" – a body of persons that holds, directly or indirectly, a majority of the means of control in the other entities in the multinational group, such that it was required to prepare consolidated financial statements under generally accepted accounting principles in Israel, or would have been required to do so had it been traded on a stock exchange, provided that no other body of persons included in the multinational group that satisfies the said condition holds it.
(b)A taxpayer that is an entity in a multinational group shall declare this on a form to be prescribed by the Director; the declaration as referred to shall include particulars necessary for the implementation of sections 85a to 85c and shall be attached to the report referred to in section 131.
(c)An ultimate parent entity that is a resident of Israel and belongs to a multinational group whose transaction turnover in the year preceding the reporting year exceeded NIS 3.4 billion or a lower amount prescribed by the Minister of Finance for this purpose with the approval of the Finance Committee of the Knesset (in this section – a reporting-obligated entity) shall submit to the Director, electronically, on a form to be prescribed by the Director, a report concerning the group and its activity in each country for each tax year, within one year from the end of the tax year.
(d)A reporting-obligated entity that has breached the reporting obligation under subsection (c) shall be deemed to have breached a reporting obligation under section 131 of the Ordinance.
(e)A reporting-obligated entity may request approval from the Director that another entity in the group (in this section – surrogate parent entity) shall submit a report as referred to in subsection (c); where the Director has granted such approval, the reporting-obligated entity shall be exempt from the reporting obligation referred to in subsection (c), provided that the Director has received such a report.
(f)An entity that is a resident of Israel in a multinational group may submit to the Director a report as referred to in subsection (c), even if it is not a reporting-obligated entity; the rules applicable to a reporting-obligated entity under the Ordinance shall apply to such an entity in respect of the reported tax year.
(g)The Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe –
(1)rules regarding approval of a surrogate parent entity;
(2)rules pursuant to which the Director shall be entitled to require an entity in the multinational group that is a resident of Israel to submit a report as referred to in subsection (c), even if the conditions referred to in that subsection have not been satisfied in respect of it.
Power to Disregard Certain Transactions§
86.
(a)Where an assessing officer is of the opinion that a certain transaction which reduces, or is likely to reduce, the amount of tax payable by a certain person is artificial or fictitious, or that a certain assignment is not actually in operation, or that one of the main purposes of a certain transaction is the avoidance of tax or the improper reduction of tax, the assessing officer may disregard the transaction or the assignment, and the person concerned shall be taxed accordingly; avoidance of tax or reduction of tax may be regarded as improper even if they do not contravene the law.
For this purpose, "transaction" – including an act.
(b)Nothing stated in this section prevents an appeal, in accordance with sections 153–158, against the decision of the assessing officer in exercising the discretion conferred upon the assessing officer in subsection (a).
Allocations to an Unapproved Fund and Unlawful Payments§
87.
(a)In respect of monies as detailed below, the Minister of Finance, with the approval of the Finance Committee of the Knesset, may prescribe by Regulations rules concerning liability to tax, the person liable thereto and the rates thereof; and these are:
(1)monies paid by an employer whose income is exempt from tax, to a fund or insurance plan intended for the payment of gratuities, pension, severance pay, sick pay, holiday pay or another similar purpose, in respect of which no approval of a provident fund has been granted pursuant to the Supervision of Provident Funds Law, as well as monies paid to a provident fund whose approval as aforesaid has been revoked or which is managed by a company that does not hold a managing company licence pursuant to that Law, provided that tax shall not be imposed on monies paid to the provident fund before the day determined as the day of revocation of the approval granted to it or the day of revocation of the managing company licence, as the case may be;
(2)monies paid by a provident fund to its members contrary to the provisions pursuant to section 23 of the Supervision of Provident Funds Law, or in the case of the winding-up of the fund if, in the opinion of the Director, after consultation with the Commissioner as defined in that Law, there was no justified reason for its winding-up; the determination of the Director pursuant to this paragraph shall, for the purposes of sections 153–158, be treated as if it were an order pursuant to section 152(b).
(b)(Repealed)
(c)(Repealed)
(d)Regulations pursuant to subsection (a) shall not apply to monies in respect of which the amount of tax applicable thereto under the provisions of this Ordinance is higher than the amount of tax that would apply thereto by reason of the application of the said Regulations, and the provisions of this Ordinance shall apply to them.
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