Transfer pricing in an international transaction involving the sale of technology
A ruling of the Tel Aviv District Court was recently published in connection with four appeals filed by Western Digital Israel Ltd. Western is an Israeli resident company that engages in the field of memory chips for storage data and is owned by SanDisk Corporation an American corporation and member of the SanDisk international group of companies.
During the course of 2014, Western sold data storage technology to SanDisk Technologies Corporation (a related company within the SanDisk group and incorporated in Texas, USA), for US $35 million.
Since this entails an international transaction between two related parties, the price of the deal was determined based on a research of market conditions carried out by EY, in accordance with the provisions of section 85A of the Income Tax Ordinance. The findings of the research revealed that the value of the sold technology ranges between US $27.73 million and US $38.15 million. The assessing officer from the Tax authority rejected the findings of the market research and determined the market value of the sold technology as being US $136 million. In addition, the assessing officer determined a “secondary adjustment” and classified the difference between the sum actually paid (US $35 million) and the market value of the asset as determined by him (US $136 million) as a loan granted by Western to the purchasing company, that led to an accrual of notional interest for Western. The assessing officer therefore determined that Western should be taxed on that notional interest on an annual basis.
Western filed four appeals on the assessing officer’s determinations. The District Court partially accepted the appeals, holding that the value of the sold technology for tax purposes was about US $62.2 million. Likewise, the court held that the secondary adjustment and determination of the notional interest liability was lawful, but its scope would instead only align with the difference between US $35 million and US $62.2 million.
Extension of validity of Temporary Order for obtaining tax monies on account of profits generated from the realization of a decentralized payment method
The Tax Authority recently published a notice regarding extension of the validity of the Temporary Order Procedure for obtaining tax moneys on account of profits generated through the realization of a decentralized payment method. The validity of the Procedure which was originally determined (in December 2023) to encompass a period of 6 months, has now been extended until 31.12.2024.
The Procedure is intended to facilitate the payment of taxes for profits generated from the realization of virtual currencies, given the many obstacles placed by the Israeli banking system concerning the receipt of moneys sourced from virtual currencies. In light of these obstacles, many holders of virtual currencies are unable to transfer moneys to their Israeli bank accounts, not even for the benefit of paying the taxes imposed on them.
The said Procedure, as recently extended, allows taxpayers to pay the associated tax liability directly to the designated bank account of the Israel Tax Authority as managed by the Bank of Israel.
It is important to emphasize that the new Procedure does not render unnecessary the voluntary disclosure procedure for unreported assets sourced from the realization of virtual currencies. As noted in our previous update, the Tax Authority expects to publish in the coming weeks a voluntary disclosure procedure which, for the first time, will facilitate an arrangement for the taxation of income sourced in this way as well, while granting applicants immunity from criminal prosecution.
*The newsletter is intended to provide subscribers with general information only, and should not be regarded as [a substitute for] professional advice and/or as a [firm and definite] legal opinion.
משרדנו ממשיך לעמוד לרשותכם לשאלות או הבהרות נוספות, בעניינים שנסקרו לעיל ובכלל, ואנו מאחלים לכם וליקיריכם ימים רגועים ושקטים.
