On 2 June 2020, the Israeli Tax Authority (ITA) published tax circular 1/2020 addressing the situations in which a transfer pricing (TP) study that is filed by a taxpayer will be considered as meeting the Israeli TP standards in accordance with Section 85A of the Income Tax Ordinance (ITO) and its Regulations.
The circular is intended to clarify the tax authority’s view of when a TP study submitted by a taxpayer would be considered to fulfill the requirements of the ITO, thereby shifting the burden of proof in the assessment procedure from the taxpayer to the ITA, but also limits the instances in which such a transfer would occur.
Tax Circular 1/2020 repeals and replaces section 2.5 of Income Tax Circular 3/2008 and clarifying situations where the taxpayer’s documentation is considered compliant with the regulations. The circular has the other adverse effect of limiting the instances in which the burden of proof shifts from the taxpayer to the assessing officer.
