Tax Treaty Case Law around the Globe 2025

Shay Menuchin

1. Introduction

The court’s decision in Western Digital discussed in this chapter is important for several reasons. First, instead of accepting one of the parties’ transfer pricing analysis, the court decided to apply its own to determine the appropriate pricing in the transaction in question. Second, it accepted the assessing officer’s claim for a secondary adjustment thereby confirming the application of the secondary adjustment in Israeli tax law. Third, the argument that was initially raised and later abandoned by the assessing officer was that, in addition to the intellectual property, there is also “practical knowledge” that was transferred by the taxpayer, however, this argument was not successful. Finally, this case deals with the pricing of intangibles transferred by an Israeli taxpayer to a foreign affiliate following the acquisition of the Israeli taxpayer by a foreign group of companies. This is quite common practice in Israel, and the court’s analysis can serve as a basis for future decisions. It will be interesting to compare this decision to other decisions of the courts in Israel in recent years concerning the resulting post-acquisition disposal of asset...