Pillar 2 Dashboard: Israel

On October 5, 2025, Israel published a draft law for consultation for a QDMTT from 2026.

GLOBE APPLICATION

General

The draft law does not attempt to redraft the OECD Model Rules, instead it transposes the OECD Model Rules into Israeli law by way of a direct static reference in Sections 3 and 4. The OECD Model Rules (translated to Hebrew) are provided as an appendix to the draft law.

The implementation of the Pillar Two rules via a static reference to the OECD Model Rules means that if the OECD Model Rules were to change, the law may need to be amended.

Section 3 of the draft law also provides that the OECD Commentary and Administrative Guidance must be taken into account as part of the interpretation. The Explanatory Notes to the draft law state that this is intended to ensure that the implementation of the law in Israel will be carried out in full uniformity with the other countries that have chosen to implement the rules, while creating a uniform standard that allows for easy implementation of the rules by multinational groups.

This makes the Israel Pillar Two law much shorter than the EU legislation and other jurisdictions that apply full-form legislation.

Section 4(d) of the draft law provides that the Minister of Finance may issue further rules relating to:

-Specific deviations from the OECD Model Rules, as permitted under the OECD Administrative Guidance;

-Safe Harbours;

-Currency conversion rules; and

-Further guidance on the QDMTT calculation.

Administrative Guidance

The OECD Commentary, including OECD Administrative Guidance is taken into account under Section 3 of the draft law when applying the Pillar Two GloBE Rules.

Safe Harbour and Penalty Relief Guidance

Whilst the OECD Safe Harbours are not specifically mentioned in the draft law, as the OECD Model Rules and Administrative Guidance and other OECD Commentary are applied in Israel, the OECD Safe Harbours should be applicable (where relevant). However, Section 4(d) of the draft law provides that the Minister of Finance is to issue further guidance on the application of Safe Harbours.

ELECTIONS

Elections in the OECD Model Rules

As the OECD Model Rules are transposed into domestic Israeli law, all GloBE elections in the OECD Model Rules should apply.

Elections in the Administrative Guidance

As detailed in Section 3.2 the elections in the OECD Administrative Guidance should apply in Israel.

NEW ELECTIONS

No new elections are provided in the Israeli draft law.

DEVIATIONS FROM THE OECD MODEL RULES/EU GLOBAL MINIMUM TAX DIRECTIVE

The fact that the OECD Model Rules are incorporated by a static reference means that much of the detailed application rules and definitions are not included in the Pillar Two law.

The static reference includes reference to the Commentary and other relevant OECD Guidance. As such the application of the rules in Israel will conform to the OECD approach.

DOMESTIC MINIMUM TAX

General

The draft law provides for a domestic minimum tax, which is intended to be a QDMTT.

QDMTT Design Features

As the draft law applies the OECD Model Rules and Administrative Guidance, the application of the domestic minimum tax and it’s specific calculation features will be in accordance with the OECD rules.

However, the only specific amendment of the OECD Model Rules relates to the exclusion of the QDMTT from the calculation of the top-up tax in Section 2 of the draft law. This is required to avoid circularity (as the OECD Model Rules applies the top-up tax calculation for IIR/UTPR purposes and deducts QDMTT from the tax amount, this is not required for the QDMTT calculation). Other mandatory and optional deviations in the OECD Administrative Guidance are not yet included (eg there are no rules for CFC pushdowns). However, Section 4(d) of the draft law provides that the Minister of Finance is to issue further guidance on the deviations from the OECD Model Rules.

Given the draft law applies the OECD Model Rules for the QDMTT calculation, it is expected that the accounting standard used for the Israeli QDMTT will be based on the default GloBE rules (ie the UPEs accounting standard unless this is not reasonably practicable) unless otherwise stated in forthcoming Ministry of Finance guidance. 

Section 4(b) of the draft law provides that instead of the QDMTT being calculated on an entity basis, a jurisdictional blending approach can apply with individual Israeli entities being liable for the QDMTT on a proportional basis calculated at the level of the MNE group in Israel.

Where this method is applied, where there are multiple Israeli entities of the MNE group in Israel, jurisdictional blending will apply to consolidate the ETR to offset entities with a higher ETR against entities with a lower ETR.  

The top-up tax will be attributed to each of the entities in the group based on the the ratio of the GloBE income of the Israeli entities to the group GloBE income. Note that top-up tax will not be attributed to loss-making entities.

The Explanatory Notes to the draft Law state that they expect the vast majority of groups operating in Israel that consist of multiple entities will choose this approach.

This approach is conditional on a designated entity being selected and the designated entity submitting a consolidated report to the Tax Authority.

Registration

Not provided.

Filing

Section 5(a) of the draft law requires the submission of a QDMTT return within 15 months following the end of the fiscal year (18 months in the first year).

However, Section 5(b) of the draft law provides that where there are multiple Israeli entities of an MNE group subject to the QDMTT, they can nominate a designated entity for filing and payment purposes. The QDMTT return will detail the method of calculating the top-up tax for the MNE group in Israel and the tax for each Israeli entity.

Payment

Section 8 of the draft law provides that payment of top-up tax must be made by the deadline for filing the QDMTT Return.

Penalties

Section 12 of the draft law provides that that failure to submit a QDMTT Return can result in a penalty of 150,000 shekels for each full month of delay.

None issued.

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