The Israeli Supreme Court has upheld two recent District Court decisions requiring a US-parented Israeli subsidiary that provided R&D services to the US parent company to include in its costs in determining its revenue, under a cost-plus formula, option expenses relating to US parent company options granted to the Israeli company's employees (Kontera Technologies Ltd v. Tel Aviv 3 Assessing Officer and Finisar Israel Ltd v. Rehovot Assessing Officer, April 22, 2018).
In recent years, the question of whether option expenses need to be included in costs for a company providing services under a cost-plus basis remuneration formula has been a contentious issue in Israeli Income Tax Authority assessments. As a result of these Supreme Court decisions, multinationals with Israeli affiliates should review their factual circumstances and consider necessary steps that may be applicable.
Read our analysis in the Insights article from Transfer Pricing
