CHAPTER SIX: SPECIAL TRANSACTIONS

Interpretation
82. (a) "Disposition", for purposes of section 83, 84 and 86 includes vesting,
a contract, an agreement, an arrangement or a transfer of assets.
(b) In cases to which these sections do not apply, no provision of sections
83 and 84 shall prevent income by virtue of disposition from being
treated as if it were the income of the disposer.

Dispositions in favor of juveniles
83. If income is payable to a person or to his benefit during a certain tax year by
virtue or in consequence of a disposition made during the disposer's life and
while the disposer is still living, and if that person had not yet reached age 20
at the beginning of that tax year and was not married, then that income shall,
for purposes of this Ordinance, be treated as if it were the disposer's income in
that tax year and not the income of any other person; it is immaterial, for this
purpose, whether the income is paid directly or indirectly, whether to that
person or to his benefit, whether at present or in the future, and whether it is
paid upon the fulfillment of a condition or after an event, the occurrence of
which is in doubt, or as the result of the exercise of a power or discretion
conferred on any person, or in any other way, and whether it is income which
under Chapter Five the person is deemed to have received as aforesaid. 119

Revocable dispositions
84. (a) If income is paid to a person in any tax year by virtue or in consequence
of a revocable disposition, whether made before or after this Ordinance
came into effect, as well as said income which under Chapter Five is
deemed to have been received by that person, then for purposes of
this Ordinance it shall be treated as the disposer's income in that tax
year and not as any other person's income.
(b) For the purposes of subsection (a), a disposition shall be deemed to be
revocable if it includes any provision for the direct or indirect transfer or
return of the income or of the asset from which it is derived to the
disposer or to his spouse, or if the disposer or his spouse has the direct
or indirect power, in any manner whatsoever, to receive or to recover
direct or indirect control over the income or over the asset from which it
is derived.

Valuation of trading stock in certain cases
85. (a) In calculating the earnings or profits from business for the purposes of
this Ordinance, trading stock which belongs to that business shall, in the
cases said below, be deemed as having been sold at the amount of its
value:
(1) trading stock that belonged to a business when it was
discontinued or transferred;
(2) trading stock which was removed or transferred out of the
business not for consideration or not for full consideration, as well
as trading stock in a business which was converted into a fixed
asset of that business.
(b) For the purposes of sections 21 and 88, the amount of the value of
trading stock which was converted into a fixed asset and which is taken
to have been sold as said in subsection (a) shall be its original cost
(c) In this section
"trading stock" any movable or real asset that is sold in the ordinary
course of the business, or which would be so sold if it were ripe or if its
manufacture, preparation or construction had been completed, and any
material used in the manufacture, preparation or construction of that
asset;
"business" includes part of a business;
"amount of value" the amount which it was possible to obtain for the
trading stock upon its sale by a willing seller to a willing buyer, free of
any encumbrance intended to secure a debt, mortgage or other right to
secure a payment; however, if the Assessing Officer is satisfied that the
price of the stock was set in good faith, without being affected, directly or
indirectly, by the existence of special relations between the seller and the
buyer and in the case of real assets also on condition that the sale was
made in writing then the price set shall be the amount of value.
(d) (1) Notwithstanding the provisions of subsection (a)(2), trading stock
specified below shall be deemed to have been sold at cost:
(a) a building converted into a rental building, as defined in
section 53A of the Encouragement of Capital Investments
Law 5719-1959 (hereafter in this subsection: the
Encouragement Law);
(b) a plot of land included in a project approved for the erection
of a rental building under the Encouragement Law, within its
meaning in the said Law, on which a rental building, within 120
its meaning in section 53A of the said Law, was built;
(c) a building or a plot said in subparagraphs (a) or (b), which
was transferred to the ownership of a company, all members
of which are owners of the business, giving them rights to
the property that are equal to their rights in the business, if
the transfer to the company was according to a demand by
the Board of the Investment Center, within its meaning in the
Encouragement Law.
(2) If a building or a plot on which a building was erected is sold
after some or all the provisions of subparagraph (1) were applied
to it by whoever received it under the circumstances said there,
and if the Land Appreciation Tax Law 5723-1963 or section 4 of
the Income Tax Law (Encouragement of Dwelling Rentals) (Ad
Hoc Provisions and Law Amendments) 5741-1981 or Chapter
Seven "A" of the Encouragement Law applies to the sale, then the
day of acquisition and the seller's acquisition price for purposes of
the said Laws shall be that day and that price which would have
been determined, if the property had been sold by whoever
transferred it to the seller; for this purpose: "building" even if its
construction has not yet been completed.

Transfer prices in an international transaction
85A. (a) If, in an international transaction, there are special relationships between
the parties to the transaction, because of which the price for the asset,
right, service or credit was determined, or other conditions for the
transaction were set so that a smaller profit was realized therefrom than
would have been realized, under the circumstances of the case, if the
price or the conditions had been set between parties without a special
relationship (hereafter: market terms), then the transaction shall be
reported in accordance with market terms and charged tax accordingly.
(b) For purposes of this section:
"means of control" as defined in section 75B(a)(2);
"together with another" as defined in section 75B(a)(4), even if not
Israel residents;
"special relationships" including relations between a person and his
relative, and also control of one party to the transaction over the other, or
control of one person over the parties to the transaction, whether direct
or indirect, alone or together with another;
"control" the holding, direct or indirect, of 50% or more of one of the
means of control;
"relative" as defined in section 76(d).
(c) (1) An assessee must deliver to the Assessing Officer, at his demand,
all the documents and data he has and that relate to a transaction
or to a foreign resident party to the transaction, and also about the
manner in which the price of the transaction was determined.
(2) If the assessee delivered documents said in paragraph (1) and
documents prescribed under subsection (e) to the Assessing
Officer, then the onus of proof shall be on the Assessing Officer, if
he prescribes anything that differs from what was agreed between
the parties.
(d) (1) A party to a transaction may apply to the Director and request
advance certification that the price of a certain transaction or of a
series of similar transactions, agreed between parties that have
special relationships, is according to market terms. 121
(2) The application shall include all the substantive facts and
particulars that relate to the transaction and also the way its price
was set, and documents, certifications, opinions, declarations,
valuations, the transaction agreement or a draft thereof and every
other document or particular, all as the Director shall prescribe in
rules, shall be attached to it.
(3) The Director may demand any additional document or particular,
which he deems necessary for his decision on the application.
(4) The Director shall announce his decision and the reasons for it
within 120 days after the application and all the documents said in
subparagraphs (2) and (3) reached him, but for reasons that
shall be recorded he may extend the time up to 180 days, on
condition that he informed the applicant of the extension before
the end of the original period.
(5) If the Director did not reply to the application within the period set
in subparagraph (4), then that shall be deemed a priori certification
that the transaction was carried out on market terms.
(e) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe:
(1) in respect of all assessees or of categories of assessees, ways or
methods of recognizing the price or conditions of a transaction as
the market price or market terms, as the case may be, as well as
provisions on relating income, expenses, deductions, credits and
exemptions, all in cases to which the provisions of subsection (a)
apply;
(2) a fee for the application for approval said in subsection (d) in the
amount he shall set, and he may prescribe that the fee be a
proportion of the value of the transaction;
(3) provisions on returns and documents to be submitted to the
Assessing Officer and provisions on registration and
documentation.

Power to disregard certain transactions
86. (a) If the Assessing Officer concludes that a certain transaction which
reduces or is liable to reduce the amount of tax payable by a certain
person is artificial or fictitious, or that a certain disposition was not in
fact carried out, or that one of the principal objectives of a particular
transaction is an improper avoidance or improper reduction of tax, then
he may disregard that transaction or disposition and the person
concerned shall be assessed accordingly; an avoidance or a reduction
of tax may be deemed improper even if it is not contrary to Law; for this
purpose, "transaction" includes an act.
(b) No provision in this section shall prevent an appeal according to sections
153 to 158 against a decision by the Assessing Officer in the exercise of
the discretion given to him by subsection (a).

Allocations to unapproved funds and unlawful payments
87. (a) The Minister of Finance may prescribe by regulations, with approval by
the Knesset Finance Committee, rules on liability to tax, the person liable
and the tax rates in respect of moneys specified below:
(1) moneys paid by an employer, whose income is exempt of tax, to a
fund or insurance scheme intended for the payment of savings,
pension, severance pay, sick leave, vacation pay or for any other
similar purpose, in respect of which no benefit fund certification 122
was given under the Control of Benefit Funds Law, as well as
moneys paid to a benefit fund, the said approval of which was
canceled or which is managed by a company that does not hold a
management company permit under the said Law, provided that
no tax be imposed on money paid to a benefit fund before the date
set as the date of cancellation of its permit, or as the date of
cancellation of the management company permit, as the case may
be;
(2) moneys paid by a benefit fund to its members in violation of
provisions under section 23 of the Control of Benefit Funds Law,
or when a fund is wound up when there is no justifiable reason for
the winding up in the Director's opinion, in consultation with the
Commissioner, as defined in the said Law; the Director's decision
under this paragraph shall, for the purpose of sections 153 to 158,
be treated as if it were an Order under section 152(b).
(b) For purposes of subsection (a) and of regulations made by virtue of it,
the following shall also be deemed moneys paid in violation of
regulations under section 23 of the Control of Benefit Funds Law:
(1) money paid to a member not by way of a pension, including money
paid by way of the capitalization of a pension by a pension benefit
fund (hereafter in this section: pension benefit fund)
(2) money paid to a member not by way of a pension, including money
paid by way of the capitalization of a pension by a benefit fund,
including a pension benefit fund, that stems from deposits that
enjoyed one of the following benefits:
(a) deposits to which the provisions of section 3(e3) were not
applied;
(b) deposits, in respect of which he was entitled to tax credits at
the rates set in section 45A(b);
(c) deposits, in respect of which he was entitled to an additional
deduction under the closing passage of section 47(b)(1);
(d) deposits, to which rates of payment were applied as
prescribed in regulations under section 22 of the Control of
Benefit Funds Law, in respect of payments to pension
benefit funds, and the rate exceeded the rate applicable at
that time to a benefit fund that is not a pension benefit fund.
(c) The provisions of subsection (b) shall not apply to the following:
(1) moneys exempt of tax under section 9A(e);
(2) moneys payable because of an employer's obligation under the
Severance Pay Law 5723-1963, to which section 9(7a) applies;
(3) money on which the amount of tax under section 2(5) and under
sections 9A and 9B is greater than the amount of tax applicable
under regulations made under subsection (a), and tax at the rates
prescribed under the said sections shall apply to them;
(4) money withdrawn from a benefit fund in instances, for which the
Minister of Finance prescribed in regulations under subsection (a)
that the aforesaid tax not apply to them.