Israeli Supreme Court upholds that stock-based compensation is included in cost base

Jackie Houlie of JH Tax Law, our contact in Israël, alerted us to the following fact.

On 22 April 2018, the Israeli Supreme Court ruled on appeals brought by Kontera Technologies Ltd. and Finisar Israel Ltd. and counter-appeals by the respective Assessing Officers with regards to the inclusion of stock-based compensation in the cost base for cost plus arrangements. The ruling also addressed relevancy of deductibility, transfer pricing (“TP”) adjustments and burden of proof.

The result of this final binding ruling of the Israeli Supreme Court is that, for Israeli tax purposes, stock-based compensation is included in the cost base of cost plus arrangements, even in cases where it is not deductible for tax purposes by the service provider. This would apply even in a case that the effective tax rate may be considered as excessive since, on one hand the stock-based compensation increases the subsidiary’s tax base, and on the other hand, is not viewed as a deductible expense.

If you want to read the complete alert, please click here: JH Tax Alert April 18