Section 1 of the Ordinance states that a corporation is regarded as an Israeli resident if it was formed in Israel or if control over the company's business and management is exercised in Israel - the "test of control and management." To conclude that control and management were performed from Israel, the courts in Israel have repeatedly struggled to apply this test, with the rule passing as the second thread being that emphasis must be placed on the essential components of control and management, not just the formal ones.

In other words, if a company incorporated outside Israel is managed and controlled from Israel (the identity of the owner, who controls the company, where the company's business policy is determined, where strategic decisions are made, and so on), the company may be classified as an Israeli resident for tax purposes and therefore pay taxes in Israel and around the world.

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