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Client Updates

Dec 30, 2015

Client Update: Important Court Ruling - Inclusion of Equity Based Compensation in Cost Plus Arrangements

This is an important update for any company that is a party to an inter-group services transaction and is applying a cost-plus transfer pricing arrangement.
The Tel Aviv District Court has ruled that accounting expenses for employee equity based compensation should be included in the cost base for purposes of determining the income of an Israeli R&D subsidiary implementing a cost-plus arrangement. The Court also denied the corresponding tax deduction to the Israeli subsidiary in accordance with the specific provisions of section 102 of the Israeli Income Tax Ordinance. 
This decision results in a dramatic increase in the taxable income of the Israeli subsidiary.  The increase in the taxable income is not only the applicable margin, which in the Court case was 7%, but rather the taxable income is increased by 107% of the accounting expenses for employee equity based compensation.

To read the full client update ,please click here.