Considerations for multi-nationals operating in Israel:
As financial year end for many companies approaches, it is worth revisiting some of the issues multinationals doing business in Israel should evaluate as part of their year-end planning. This is also an opportune time to do an overall check up on systems.
Compliance with local employee regulations and statute should be re-evaluated. Israel has a relatively complex set of employment rules:
- Annual vacation and sick days, and the treatment of carry forward balances at year end should be evaluated.
- The completeness of pension and education fund payments. Whilst adjustments within the same financial year are relatively straight forward, errors from prior years are increasingly more difficult to correct.
- Evaluation of bonus accruals, and the completeness of accounting provisions for vacation, recuperation, severance etc.
- Any contingent liabilities for workplace disputes.
- The status of severance contingencies and the application of S.14 of the Severance Act.
- Assurance that advance corporate tax payments cover expected corporate tax liabilities to prevent fines and penalties on underfunded portion.
- Completeness of all supplier information to ensure adequate completion of Form 856
- Adequacy of accounting tax provisions, taking into account both permanent and temporary tax differences.
- Assessment of withholding tax status for vendors under Israeli tax rules often runs along financial year lines.
- Multinationals should review their transfer pricing policies and models.
- Transfer pricing documentation should be up to date for audit inspection (and potential tax queries), and where necessary transfer pricing studies should be updated based on Israeli tax guidelines.
- Potential compliance with BEPS requirements should also be considered.
- Differences between local Israeli GAAP (if applied) and IFRS or US GAAP should be revisited.
- As dual systems are often maintained on both a local and head office level, reconciliation between local and overseas sets of accounts should be undertaken prior to year-end.
- A review of the completeness and accuracy of accounts should be undertaken to prevent material audit adjustments that may create variances between management and statutory accounts.
- Timing of audit requirements for both local and Group purposes, taking into account Israeli deadlines for lodgingboth annual tax returns and statutory financial statements.
- The VAT Authorities systems automatically record irregularities in VAT filings. They usually don’t follow these up with taxpayers but at some stage they will expect these to be cleared (i.e. on de-registration or special request). Financial year end is an opportune time to get a copy of these and methodically go through them.
GROUP REPORTING STRUCTURE
- The centralisation or decentralisation of management is a critical issue, and one and that often requires renewed analysis.
- In particular, in Israel, with language and cultural differences, the chain of control and decision-making may not always fit neatly into regional patterns and should be examined.
- Year- end planning is often a good time to assess vendors, their service quality and performance over the prior year.
- Changing of suppliers is often most opportune with the start of a new financial year.
Proper planning for financial year end can significantly add to efficiencies in the year end process and statutory audit as well as reduce material variations to budgets and management accounts. In addition, operational efficiencies and streamlining can be achieved by reviewing existing policies and practices.
Steven Flax Managing Partner | Accounting Outsourced Services - Tel Aviv
Ivan Shapiro Partner | Head of Assurance and Advisory - Tel Aviv