Circular 08/2026: "Marketing Intangibles" and Hi-Tech Tax Benefits — What Changed

Category: Incentives & Grants | Reading time: about 6 minutes

Background: why separate a "marketing intangible" at all?

As part of Amendment 73 to the Law for the Encouragement of Capital Investments, Israel adopted the principles of Action 5 of the OECD/G20 BEPS project: IP tax benefits are granted only on income derived from a benefited intangible asset — legally protected intellectual property such as a patent, plant-breeders' rights or software. By contrast, income sourced in a marketing intangible — a brand, trade name, logo, customer list, customer relationships — is excluded from the definition of "technological income" and is not eligible for the benefits.

The problem: the BEPS rules did not prescribe explicit provisions on how to measure the marketing intangible's share of income, creating interpretive uncertainty — precisely the gap the new circular closes.

The 10% rule — a numeric anchor

Regulation 6(c)(2) of the Encouragement of Capital Investments Regulations sets a simple, important rule: if the income attributable to the marketing intangible does not exceed 10% of the technological income attributable to the benefited asset — no income is attributed to the marketing intangible at all, and the entire income is classified as "technological income" eligible for the statutory benefits.

In plain terms: a marginal marketing contribution does not "spoil" the benefit. Only where the marketing component is material (above 10%) must it be separated and computed.

The criteria: when there is no material marketing intangible

The heart of the circular — a list of indications that marketing's contribution to income does not exceed 10%, so that no income should be attributed to a marketing intangible:

• Nature of the business and product: the company sells to businesses (B2B) or to government bodies (B2G) or to a not-for-profit body — not to the broad consumer public;
• Specification-driven purchasing: the customer buys on the basis of the product's technical specifications or functionality — not advertising and brand;
• Regulatory requirements: the purchase is made on the basis of regulatory requirements;
• Component in another's product / subcontractor: the item sold is a component in another company's final product, embedded in it and "losing its independent identity" in the production process;
• Grant of a right of use: the company develops the asset and grants a right of use to another company, which is the one marketing the product — the income derives from the IP, not from marketing;
• Absence of significant competition: the market has no real competition due to the product's uniqueness — so the marketing contribution is marginal;
• Low marketing expenses: the ratio of marketing expenses to R&D expenses and to the scope of activity is low. The circular stresses, however, that the mere existence of marketing expenses does not in itself prove a material marketing intangible.

The big novelty: the assessor cannot decide alone

This is the most important part practically. The circular establishes a binding internal control mechanism: an assessing officer who believes the company has a marketing intangible and seeks to attribute income to it (denying part of the benefits) may not do so without prior written approval of the Tax Authority's professional division:

• A best-judgment assessment (stage A, section 145 of the Ordinance) — requires written approval of a senior department manager (encouragement laws and incentives) in the professional division;
• An assessment by order (stage B, section 152) — requires written approval of a senior division manager (professional) or the senior deputy director-general for professional affairs, plus the approval of the assessing office's legal referent;
• The directives apply also to open assessments in which discussion had begun before the circular's publication (but not to orders already issued);
• The approval concerns only the existence of a marketing intangible and the attribution of income to it — not other issues in the assessment.

In addition, a company seeking certainty in advance may proactively approach the professional division for a pre-ruling on the existence of a marketing intangible and the attribution rate.

What this means for technology companies — the bottom line

1. Greater certainty. For the first time there is a written list of criteria to rely on in planning and in assessment discussions;
2. Procedural protection. A local assessing officer can no longer "carve out" a slice of income as marketing-derived without the professional division's written approval — a significant barrier against aggressive assessments;
3. If you have an open assessment discussion on the issue — verify the required professional approval was actually given; its absence is a real procedural argument;
4. Documentation helps. A company that documents the nature of its sales (B2B, specifications, regulation) and its marketing-to-R&D expense ratio arrives at the discussion with a ready file;
5. Where certainty is required — consider a pre-ruling application to the professional division for certainty in advance.

← Read our full guide: The new R&D tax credit track in the Encouragement Law

This article is provided for general information only and does not constitute professional advice or a substitute for personal advice. Application of the criteria depends on each company's specific circumstances. For any question, please contact us and we'll be glad to assist.

Best regards,
Hager-Alperowitz & Co. — Certified Public Accountants