Income Tax Circular 08/2026: Marketing Intangibles and Tax Benefits for Technology Companies

On August 4, 2026, the Israel Tax Authority published Income Tax Circular 08/2026 on an “intangible asset used for marketing.”

The Circular does not create a new tax benefit and does not replace Income Tax Circular 9/2017. Its purpose is to clarify how to examine whether a company has a marketing intangible asset, what portion of income should be attributed to that asset, and what internal approval mechanism applies before a tax assessment is issued on the issue.

The subject is particularly relevant to technology companies seeking tax benefits under the Law for the Encouragement of Capital Investments, especially companies with software, patents or other intellectual property that sell products under an independent brand or through a substantial marketing and sales organization.

Read the full Circular on the Israel Tax Authority website

 

The Bottom Line

When a company generates income from a benefited intangible asset, that income may qualify for the tax benefits available under the technology regime.

By contrast, income derived from an intangible asset used for marketing, such as a brand, trade name, customer list, customer relationships or customer information, is not treated as technological income eligible for those benefits.

The question is therefore not only “How much did we spend on research and development?” It is also:

• What asset actually generates the income?
• How does the customer make the purchasing decision?
• What part of the value comes from technology, and what part comes from marketing?
• Does the company have an evidentiary foundation that supports the classification before the Israel Tax Authority?

 

What Is an Intangible Asset Used for Marketing?

The Circular describes a marketing intangible as an intangible asset such as:

• A brand
• A trade name
• A customer list
• Customer relationships
• Customer information

The central question is not simply whether a trade name or marketing activity exists. It is whether the asset actually assists in marketing or selling the product or service and whether it makes a material contribution to income.

The existence of a brand does not automatically establish that there is a separate stream of marketing income. The analysis should be based on the facts, the sales model, the functions performed by the companies in the group and the economic contribution of the different assets.

 

How Does This Relate to the Law for the Encouragement of Capital Investments?

Amendment 73 to the Law for the Encouragement of Capital Investments adopted OECD principles under Action 5 and introduced the regimes of a “Preferred Technological Enterprise” and a “Special Preferred Technological Enterprise.”

Eligibility for the benefits depends, among other things, on the existence of a “benefited intangible asset.” The definition of “technological income” includes certain income derived from that asset, while excluding income derived from an intangible asset used for marketing.

Income attribution is determined under Regulation 6(c) of the relevant regulations, in accordance with the arm’s-length principle in Section 85A of the Income Tax Ordinance and the OECD Transfer Pricing Guidelines, with the necessary adjustments.

The relevant international framework includes OECD Action 5 and the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022 edition).

 

What Is the 10% Threshold Rule?

Regulation 6(c)(2) provides that when the income attributed to the marketing intangible does not exceed 10% of the technological income attributed to the benefited intangible asset, no income is attributed to the marketing intangible and the income is classified as technological income eligible for the tax benefits.

This point requires precision: the 10% is not measured against turnover, taxable income or the company’s accounting profit. The relevant comparison is with the technological income attributed to the benefited intangible asset.

The Circular clarifies that this was also the basis of the comparison under Circular 9/2017: the reference point is technological income, not the company’s taxable income.

The threshold is not a general exemption from analysis and does not eliminate the need for a factual review and supporting documentation. It operates within the conditions established by the Law for the Encouragement of Capital Investments and the regulations issued under it.

 

What Circumstances May Support the Position That There Is No Material Marketing Intangible?

The Circular identifies a number of relevant indicators. The list is not exhaustive, and each case must be examined according to its specific facts.

 

Customer and Product Profile

The position that there is no material marketing intangible may be strengthened when:

• Sales are made to businesses, government entities or non-profit organizations.
• Purchases are based primarily on technical specifications or functionality.
• The purchase is driven by regulatory requirements.
• The product is a component embedded in a final product and loses its independent identity.
• The company operates as a subcontractor.

 

Licensing Model

Where a company develops a benefited intangible asset and grants another company a long-term right of use, and its income is derived from royalties, the tendency will be not to attribute the income to a marketing intangible.

This is not automatic. The licensing agreements, allocation of functions and actual activities must still be examined.

 

Product Uniqueness

Where competition is limited because of the product’s uniqueness, and the contribution of the brand or marketing activity to income is marginal, this may support the position that there is no material marketing intangible.

 

Marketing and Sales Expenses Compared with R&D Expenses

A low level of marketing and sales expenses compared with research and development expenses may be a relevant indicator.

However, the Circular emphasizes that the existence or amount of marketing expenses, by itself, does not prove the existence or materiality of a marketing intangible. The full set of facts must still be considered.

 

What Happens When There Are Indicators of a Marketing Intangible?

Where there are indicators that a marketing intangible exists, the Assessing Officer may determine in a tax assessment that such an asset exists and attribute income to it in accordance with the arm’s-length principle.

The Circular nevertheless establishes an internal approval mechanism within the Israel Tax Authority:

• A best-judgment assessment at Stage A under Section 145 of the Ordinance requires written approval from a Senior Director in the Professional Division.
• An assessment order at Stage B under Section 152 of the Ordinance requires written approval from a Senior Department Director in the Professional Division or from the Deputy Director General for Professional Affairs.
• The approval relates only to the existence of the marketing intangible and the attribution of income to it, and not to any other issue in the assessment.
• The instructions also apply to assessments whose discussion began before publication of the Circular, but not to assessment orders issued before its publication.

This mechanism does not provide a company with immunity and does not replace the substantive professional examination. It is intended to promote internal control, consistency and professional oversight within the Israel Tax Authority.

 

Can a Company Obtain an Advance Tax Ruling?

Yes. The Circular clarifies that a company may approach the Professional Division with a request for an advance tax ruling on matters such as:

• Whether a marketing intangible exists
• The percentage of income to be attributed to the marketing intangible
• The method for attributing income

For a company with a complex structure, multiple intangible assets, international activity or a significant change in its sales model, an advance tax ruling may provide greater certainty before tax returns are filed or before a restructuring is implemented.

 

What Should Technology Companies Review Now?

A structured review should include at least the following steps:

1. Map all intangible assets: software, patents, know-how, brands, trade names, customer relationships and databases.
2. Link each source of income to the asset that actually generates it.
3. Document how customers make purchasing decisions: specifications, functionality, regulation, price, brand or relationship-based factors.
4. Review licensing, distribution, marketing and intra-group agreements.
5. Align tax files, transfer pricing policies, financial statements and operating data.
6. Maintain documentation on an ongoing basis rather than only when the annual tax return is prepared.
7. Consider whether an advance tax ruling process is appropriate.

The review should not focus only on the question “How much did we spend on marketing?” The central question is which asset, activity and function generate the economic value and the income.

Conclusion

Circular 08/2026 brings the discussion back to the most important business question: what actually created the profit?

For a technology company, the answer may affect the classification of income, tax benefits, transfer pricing policy and the level of certainty available in dealing with the Israel Tax Authority.

Good preparation is not limited to calculating percentages. It requires a coherent connection between the technology, product, marketing, contracts, financial data and the business story the company can substantiate.

AUREN supports technology companies and international groups in analyzing intangible assets, technological income, transfer pricing, tax incentives and documentation processes for management, boards and the Israel Tax Authority.

 

The information in this article is general in nature and does not constitute tax advice, a legal opinion or a substitute for a review of the specific circumstances of a company.

 Best regards,

Ofir Angel

Chairman, Managing Partner | International Taxation & Cross-Border Business

AUREN Israel