Israel: Adjusted intellectual property (IP) valuation (District Court decision)

The Tel Aviv District Court on June 30, 2024, issued a decision delving into elements of intellectual property (IP) valuation analysis. In somewhat of a first for Israel courts, the case centered on specific valuation parameters and valuation analysis; the decision provides a helpful reference in an area that has seen a great deal of local controversy with the Israel Tax Authority (ITA).

The case is: M-Systems Flash Disk Pioneers Ltd/Sandisk IL Ltd v. Tel Aviv 3 Assessing Officer. Read the decision (Hebrew)

Summary

The taxpayer in 2014 sold IP to a U.S. related party at a value of $35 million.

The ITA challenged the valuation analysis that had been performed and issued an assessment according to an adjusted IP value of $136 million.

The case revolved around detailed valuation elements that were fact-specific to the case at hand, including the breakdown of broader intangible assets with regards to the IP assets sold, the projected useful life of the IP, discount rates, forecast growth rates, etc.

The court determined distinct values for each of the analytical elements in question, reaching an adjusted IP valuation of $62.2 million. The decision also upheld a secondary adjustment applying deemed intercompany interest on the additional revenue deemed to have been received by the local entity.