What are CbC reports and what do they do?

The answer lies in the CbC reports, which will soon but belatedly be required in Israel. CbC reports will give the ITA eyes to see around the world what activities a multinational group has.

 Illustrative image of doing taxes. (photo credit: PXHERE)
Illustrative image of doing taxes.
(photo credit: PXHERE)

Earlier this month, the senior deputy director of the Israel Tax Authority (ITA), Roland Am-Shalem, issued guidance for preparing country-by-country (CbC) reports by large multinational groups.

This followed new tax regulations of September 20 that expanded the transfer-pricing reporting requirements in Israel for medium to large multinational groups with entities in Israel and global revenues over NIS 150 million.

What’s so important about the CbC reports?

Until recently, the ITA has been cruising along with a big black spot in its vision. Suppose a foreign company records a profit of NIS 1m. in Israel and NIS 1 trillion in a sunny offshore island. How will the ITA ever know the NIS 1t. is out there in the offshore location?

The answer lies in the CbC reports, which will soon but belatedly be required in Israel. CbC reports will give the ITA eyes to see around the world what activities a multinational group has.

Under the OECD’s pronouncement, called BEPS Action 13, large multinational enterprises (MNEs) are required to prepare a country-by-country (CbC) report with aggregate data on the global allocation of income, profit, taxes paid and economic activity among tax jurisdictions in which it operates. BEPS is short for base erosion and profit shifting.

Calculating taxes (credit: INGIMAGE)Calculating taxes (credit: INGIMAGE)

The CbC report is shared with tax administrations in these jurisdictions for use in high-level transfer-pricing and BEPS risk assessments.

So, if there are many employees in Israel and few in the offshore island, the CbC report will show this to the ITA, which may then have some questions. The ITA’s questions are likely to focus on transfer pricing. Transfer pricing is a knotty subject for many multinational groups and tax authorities. The goal is to ensure that intercompany transactions are done on an arm’s-length basis, i.e., applying market prices and terms, with no shenanigans. In Israel, transfer-pricing studies are already required by law, and so is an arm’s-length declaration.

The ITA’s latest CbC guidance

According to the ITA, its director in 2016 signed an automatic information-exchange agreement with the OECD that prepared the way for CbC reports. But the ITA had to wait until this past July for the above regulations, giving the Knesset authority to demand CbC reports in Israel.

Israeli multinational groups, with an Israeli ultimate parent entity (UPE) and with annual revenues over NIS 3.4 billion are covered in principle by the CbC requirement, in XML electronic format, starting with 2022. These reports will be shared with other countries. They may choose to file the CbC reports in another country, which would then share the report with ITA. Israeli UPEs may choose to file a CbC report for 2021, but the ITA guidance does not appear to give a reason why a UPE should choose this.

As for Israeli companies in foreign multinational groups, with a foreign UPE, they will be required to tell the ITA in which country they filed a CbC report. These filing are to be made both online and to a designated email address.

Other transfer-pricing changes this year

Transfer-pricing studies must now be filed within 30 days after any request from the ITA, instead of 60 days previously.

Israeli Tax Form 1385 was recently expanded administratively into an OECD local file to require a listing of every intercompany transaction with Israeli entities, including description, amount, pricing method, level of profitability and whether any safe harbor contained in Tax Circular 12/2018 was applied.

If group revenues exceeded NIS 150m. in the preceding year, an Israeli entity must add to its transfer-pricing study a report, corresponding to the OECD master file that covers various macro aspects of the group


Israeli ultimate parent entities with revenues over NIS 3.4b. must file CbC reports for 2021 by March 31, 2023.


Many countries, including the US, EU and Israel (sometimes), now impose sales tax or VAT if you sell to consumers in their country, and sometimes income tax too. This will enormously complicate transfer-pricing studies in our view. Specialist advice is recommended.

As always, consult experienced tax advisers in each country at an early stage in specific cases. [email protected]

The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.