Tax Treaty Case Law around the Globe 2023

1. Introduction

Israel has a successful start-up environment that leads many foreign multinational groups to identify and acquire ownership in Israeli companies. Usually, post-acquisition, the acquiring multinational group seeks to restructure the operation of the acquired Israeli company to better align it with its own business model. The nature and extent of such post-acquisition integration varies from one multinational group to another. The Israeli Tax Authorities (ITA) have developed a very aggressive position with respect to these post-acquisition integrations. In practice, the position taken by the ITA was more aggressive than the position taken in its circulars. Recently, the ITA issued a revised circular that reflects a position consistent with the position taken by the ITA in practice. In essence, according to the ITA, every post-acquisition integration involves a business restructuring that includes a transfer of functions, assets, and risks (FAR) from the Israeli company to the foreign multinational group resulting in deemed asset disposals and consequential capital gains tax.

Medingo is another case in a series of cases whereby multinational groups acquire Israeli-based ...