Country Q&A Israel
Tax 2007/08 Volume 2: Tax on Finance Transactions
Israel
Leor Nouman and Ophir Kaplan, S. Horowitz & Co.
www.practicallaw.com/2-261-8952
Taxes on corporate lending/borrowing
foreign currency (section 1, ITO). Any future references to linkage
differentials include exchange rate differentials.
1. What are the main corporate taxes potentially chargeable on
interest and other amounts receivable under a loan? In each
case, explain briefly:
Generally, there are two main types of interest income for corporate tax purposes:
Its key characteristics.
How it is calculated.
How it is triggered.
The applicable rate(s).
Corporate tax
Figures are submitted to the tax authorities and adjustments are
made in accordance with relevant tax laws to determine the taxable income. Certain companies can calculate and report their
taxable income on a cash basis (a method to report income when
received and expenses when paid). These companies are usually
those without inventory (in general, any movable or real estate
sold in the ordinary course of business, or which would be so sold
if it were ripe or if its manufacture, preparation or construction
had been completed, and any material used in the manufacture,
preparation or construction of that asset) such as professional
companies (for example, law firms). The taxable income is the
lender’s profits from the loan minus any deductible expenses.
There is no specific definition of interest in the ITO (although the
term “debentures interest” is defined (section 1, ITO)). The courts
interpret interest widely and usually include linkage differentials and/
or exchange rate differentials (see Question 2). The term “linkage
differentials” is defined as any amount added to a debt or amount
of claim in consequence of linkage to the currency exchange rate,
the consumer price index or some other index, including exchange
rate differentials (a limited definition exists for tax exemption purposes which is relevant, mostly, for individuals) (section 1, ITO).
“Exchange rate differentials” is defined as an amount added in consequence of a change in the currency exchange rate to the principal
of a loan, which is a foreign currency deposit or a loan repayable in
Business income. This is the income of lenders, the core
business of which includes lending money (for example,
banks and other financial institutions) (section 2(1), ITO).
Passive income. This is the income of lenders, the business
activities of which do not involve lending money (section
2(4), ITO).
This classification may have consequences, for example, for setting off losses against income (if the interest income is classified
as business income then the lender can set off any sort of loss
against such income).
The corporate tax rate on interest income is generally the regular
corporate tax rate, which is 29% for the 2007 tax year and a
lower tax rate for subsequent tax years (up to a maximum rate of
25% for the 2010 and subsequent tax years).
The borrower must usually withhold the tax (see Question 4).
Value added tax (VAT)
If the lender is registered as an authorised dealer (basically, a company, other than a non-profit organisation or a financial institution,
that sells assets or provides services in the course of its business
and that is lawfully registered with the VAT authorities) for VAT
purposes, the interest on the loan may also be subject to VAT (the
current rate of VAT is 15.5%) (sections 1 and 2, Value Added Tax
Law 1975 (VAT Law)). The lender usually collects VAT from the
borrower and transfers it to the VAT authorities, after making any
deductions for its own VAT payments (in certain circumstances).
The taxable base for VAT purposes is the interest and other amounts
(for example, linkage differentials) receivable under the loan.
If an authorised dealer lends money to a financial institution, it is
exempt from VAT (section 31(5), VAT Law).
If the lender is registered as a financial institution for VAT purposes, it must pay a wage-and-profit tax (instead of VAT) on the
loan (section 4(2), VAT Law), and it cannot receive a refund for
input tax (that is, VAT it pays). Financial institutions are subject
to wage-and-profit tax at the rate of 15.5% of wages they pay and
profit they earn (the terms “wage” and “profit” are defined in
section 1 of the VAT Law).
CROSS-BORDER HANDBOOKS www.practicallaw.com/financetaxhandbook
PLC
Country Q&A
Generally, corporate lenders are taxed on their taxable income resulting from a loan under the Income Tax Ordinance [New Version]
5721 - 1961 (ITO). Costs and income are usually reported using
an accrual basis (that is, a method to report income when earned
and expenses when incurred). The company’s taxable income is
usually based on the financial reports prepared by the company in
accordance with Israeli generally accepted accounting principles.
35
© This chapter was first published in the PLC Cross-border Tax Handbook 2007/08 Volume 2: Tax on Finance Transactions and is reproduced with the permission of the publisher,
Practical Law Company. For further information or to obtain copies please contact lisa.newton@practicallaw.com, or visit www.practicallaw.com/financetaxhandbook.
Country Q&A Israel
Tax 2007/08 Volume 2: Tax on Finance Transactions
Non-profit organisations are not subject to VAT and cannot receive a refund for input tax. However, non-profit organisations pay
wage tax at the rate of 7.5% on wages paid to their respective
employees and employers’ tax at the rate of 4% on salary payments made to their respective employees.
2. What corporate tax reliefs are available for borrowing costs
(including interest and other amounts payable under a loan)?
In each case, explain briefly:
Its key characteristics.
How it is calculated.
How it is triggered.
The applicable rate(s).
Generally, a borrower can deduct sums payable as interest or linkage differentials on the loan if the tax authorities are satisfied
that those sums are payable on borrowed capital used wholly and
exclusively in generating the borrower’s income.
However, following certain court decisions (for example, civil appeal 638/85 Assessing Officer v Plaza Hotel Ltd and civil appeal
627/73 M.D.M. Ltd. v Assessing Officer), the borrower’s right to
deduct borrowing costs may be limited, depending on the type of
income generated using the borrowed capital, as follows:
Country Q&A
A company that receives business income from interest (see
Question 1, Corporate tax) may be entitled to deduct its
borrowing costs more easily, even if it generates no income
as a result of the loan made using the borrowed money in
the tax year in which the expenses were incurred.
A company that uses borrowed money to produce passive
income from interest (see Question 1) can usually only
deduct the borrowing costs against income generated from
using the borrowed money.
If the loan is used for capital investments (for example, the
purchase of a factory or machinery), the borrowing costs
are not deductible during the tax year in which they were
incurred. They are capitalised (that is, the investment is valued for depreciation calculations) to the cost of the capital
asset and become deductible on the date the asset is sold.
If the loan is used for private investments, the borrowing
costs are not deductible.
If the loan is used to finance a dividend distribution, the
borrowing costs may not be deductible, according to some
court decisions (for example, civil appeal 6557/01 Paz-Gaz
v Assessing Officer), except in certain specific circumstances that the tax authorities are expected to set in the
near future.
The tax authorities may limit or prohibit the deduction of expenses or reclassify any sums paid in the form of borrowing costs.
36
3. What corporate, transfer, stamp or other taxes are payable
on the transfer of a debt under a loan? In each case, explain
briefly:
Its key characteristics.
How it is calculated.
How it is triggered.
Who is liable.
The applicable rate(s).
The transfer of a debt under a loan may be subject to corporate
tax or capital gains tax under the ITO. The type of tax payable depends on the transferring party’s identity and the circumstances
of the transaction (for example, if the transferring party transfers
debt in the ordinary course of its business, then corporate tax is
payable; however, in most other cases, capital gains tax is payable).
Corporate tax
See Question 1, Corporate tax.
Capital gains tax
Generally, the corporate tax rate on real capital gains (that is, the
capital gain minus inflation) is:
25% for the part of the capital gain accrued after 1 January
2003.
The regular rate that applies for business income earned by
a company on the date the asset is sold (29% for the 2007
tax year) for the part of the capital gain accrued before
2003.
When calculating the capital gains tax payable, certain basic
principles must be considered (for example, type of asset, transferring party’s identity, tax exemptions and set off of losses).
For a sale of shares with a loan, a certain tax benefit/calculation may apply in certain circumstances (section 94A, ITO). In
a capital sale of an unlinked interest-free loan (that is, a loan
given by a shareholder to its company, the terms of which do not
include linkage differentials and interest) with shares, when the
sale is made at least three years after the loan was granted by a
shareholder to the company, the consideration payable for the
loan is deemed to be the part of the aggregate consideration for
the shares and the loan equal to the adjusted balance of the cost
price of the loan.
VAT
In practice, in most cases, the transfer of a debt is not subject to
VAT. For example, VAT is not payable when the debt is transferred
by means of a security or a merchantable document. There is no
definition of “merchantable document” in the VAT Law, but it can
basically include any document the transfer of which gives rise to
the transfer of the rights attached to it (for example, a debenture
or a promissory note).
CROSS-BORDER HANDBOOKS www.practicallaw.com/financetaxhandbook
PLC
© This chapter was first published in the PLC Cross-border Tax Handbook 2007/08 Volume 2: Tax on Finance Transactions and is reproduced with the permission of the publisher,
Practical Law Company. For further information or to obtain copies please contact lisa.newton@practicallaw.com, or visit www.practicallaw.com/financetaxhandbook.
Country Q&A Israel
Tax 2007/08 Volume 2: Tax on Finance Transactions
Stamp duty
The obligation to pay stamp duty in Israel was abolished in
2006.
4. Is there withholding tax on interest or any other payments
under a loan? If so, provide brief details of:
When it applies.
The applicable rate(s).
Any exemptions.
Withholding tax
In general, the party paying interest or other incremental payments under a loan must, at the time of payment, deduct tax
from the amount paid. If the receiving party is a corporate body,
the regular withholding tax rate is usually the rate of corporate tax
(29% for the 2007 tax year and a lower tax rate for subsequent
tax years), unless the tax authorities allow an exemption (see below, Exemptions from withholding tax).
Bond issues
6. For corporate taxation purposes, are bonds treated any differently from standard corporate loans? If so, provide brief
details of the differences, referring to Questions 1, 2, 4 and
5 as appropriate.
There is no specific tax regime that applies to corporate bondholders or bond issuers, which are largely taxed as described in
Questions 1 to 4.
Generally, the interest paid through the bond or the discount payments is classified as income (in most cases under section 2(4),
ITO) and is subject to corporate tax (see Question 1, Corporate
tax). The consideration for the sale or redemption of the bond is
classified as capital gains income in most cases, or as a business
income (section 2(1), ITO).
7. What stamp, transfer or similar taxes are payable on the issue
and/or transfer of a bond? In each case, briefly explain:
Its key characteristics.
In practice, it seems that only companies registered in Israel for
tax purposes or that have a business presence in Israel must withhold tax.
How it is calculated.
How it is triggered.
Exemptions from withholding tax
Who is liable.
A large proportion of parties (usually, most parties that pay taxes
and report lawfully) receiving interest under a loan may receive an
approval from the tax authorities, which entitle them to either:
The applicable rate(s).
Be exempt from withholding tax.
If the bond is deemed to be a merchantable document, its issue
and transfer is generally not subject to VAT or any other similar
taxes (see Question 3, VAT).
Pay a lower rate of withholding tax (for example, payments
of interest under a loan that are made to a known foreignresident financial institution such as CityBank or Credit
Suisse may be subject to a lower tax rate).
8. Are any exemptions available? If so, provide brief details.
In addition, lower withholding tax rates are set under most tax
treaties to which Israel is a party, in relation to, among other
things, interest payments (generally, between 0% to 25%). (Israel has tax treaties with more than 40 countries.)
Not applicable.
For a comparative summary of withholding tax on interest, see table,
Withholding tax on interest on corporate debt, in this Handbook.
9. What are the basic rules for enabling the lessor or lessee of
plant and machinery to claim capital allowances/tax depreciation?
5. Do any particular tax issues arise on the provision of a guarantee? If so, provide brief details.
The main tax issue that arises in relation to guarantees occurs
when a guarantor has repaid a loan and claims a tax deduction.
If a guarantor issues a guarantee in the course of its trade, any
payment to be made is generally deductible, because it is made
wholly and exclusively for the purposes of its trade. However, in
other cases, the deductibility of the expense is the same as any
other capital expense or loss (see Question 2).
Plant and machinery leasing
Generally, the lessee’s rental payments are classified as either a
(see also Question 1, Corporate tax):
Capital allowance.
Business/passive expense.
The specific classification depends on:
The particular asset.
CROSS-BORDER HANDBOOKS www.practicallaw.com/financetaxhandbook
PLC
Country Q&A
37
© This chapter was first published in the PLC Cross-border Tax Handbook 2007/08 Volume 2: Tax on Finance Transactions and is reproduced with the permission of the publisher,
Practical Law Company. For further information or to obtain copies please contact lisa.newton@practicallaw.com, or visit www.practicallaw.com/financetaxhandbook.
Country Q&A Israel
Tax 2007/08 Volume 2: Tax on Finance Transactions
The lessee’s identity.
The length of the lease.
Other circumstances relevant to the lease agreement.
The lessee must be a holder of rights to real estate for a
period of not more than 25 years and must not:
In a real estate lease, the classification depends (subject to certain exceptions according to court decisions) on the length of the
lease (a lease period of more than 25 years usually indicates that
the lease payments are capital allowances).
If the lease payment is a capital allowance (rather than a business allowance which can be deducted easily), the lessee can
make a claim for an allowance and/or depreciation under certain
alternative regulations (sections 20 and 21, ITO), as follows:
in real estate;
used for producing its income; and
for a period of less than 49 years.
Country Q&A
the lessee is the lessor’s relative;
the lessor and the lessee are both controlling members
of one another; or
the same entity controls both the lessee and the lessor.
In addition, the lessee deducts expenses incurred in the
leased real estate from its income in equal annual amounts.
The expenses must be for constructing or installing fixtures,
or for planting fixtures that will remain part of the lessor’s
property after the end of the lease period.
The deduction starts from the year that the construction, installation or planting was completed and lasts until the end
of the lease period. If the lessee and the lessor agree in the
lease that, at the end of the lease period, the value of the
fixtures is to return to the lessee, then the deduction during
the lease period for the expense is the rate of depreciation
specified in the ITO for that asset category.
Income Tax Regulations (Rules on Deduction of Expenses
for the Adaptation of Rental Property) 1998. The lessee
deducts expenses it or the lessor incurs for adapting rental
property for producing the lessee’s income at a rate of 10%
in each tax year (and not the regular depreciation rate). This
starts from the tax year in which they were incurred, but
not before the tax year in which use of the rental property
started for producing the lessee’s income.
The rental property must be a building both:
38
the construction of which has finished;
be a controlling member of the lessor, or the lessor
must not be controlling member of it; or
be controlled by an entity that also controls the lessor.
The lessee can elect to rely on either the Income Tax Regulations (Rules on Deduction of Expenses for the Adaptation
of Rental Property) 1998 or the Income Tax Regulations
(Deduction of Lease Payments) 1977 (see above) to claim a
deduction, but cannot rely on both.
It does not qualify if:
be a relative of the lessor;
At the end of the rental period and when the rental property
is vacated, the remainder of the lessee’s expenses for
adapting the rental property is deductible. If the lessor has
refunded the lessee for adapting the rental property or as
payment for it, then these amounts are not taken into account when calculating the deduction.
Income Tax Regulations (Deduction of Lease Payments)
1977. The lessee deducts lease payments it makes either
through lump sums or instalments from its income in equal
annual amounts during the lease period. To qualify for this,
the lessee must have a lease:
which is fit for residential use, business use or any
other purpose for which it was built.
Section 21 of the ITO. If the lease of real estate property is for
a period of 49 years or more, the lessee is deemed the owner
of the property for depreciation purposes. This means that the
lessee can deduct the regular depreciation rate, generally 2%
to 4% of the building’s value (usually, one-third of the value of
a real estate property is deemed the land that is not depreciated, and two-thirds is the building’s value). The lessee can also
claim its financing costs (interest and other payments it makes
for leasing the asset) as a deduction (see Question 2).
Income Tax Regulations (Special Deductions for Users of
Hire Purchase Equipment) 1989. A lessee of equipment
under a hire-purchase agreement can claim a deduction
for the sums it pays for using the equipment to produce its
income (instead of claiming the financing and depreciation
costs). For the lessee to benefit from this reduction, it must
meet certain conditions, including those relating to:
the type of asset involved (for example, real estate assets are not included);
the dates for making lease payments;
the type of lease contract; and
a minimum lease period;
the lessee’s right to purchase the asset at the end of
the lease period.
Income Tax Regulations (Accelerated Depreciation for Asset
Purchased at the Determining Period) 2005. A lessee can
claim accelerated depreciation (for example, 100%) in
certain conditions (conditions include the use of the equipment in Israel for the production of income from certain activities such as manufacturing, agriculture or construction).
However, the regulations apply only to assets purchased
CROSS-BORDER HANDBOOKS www.practicallaw.com/financetaxhandbook
PLC
© This chapter was first published in the PLC Cross-border Tax Handbook 2007/08 Volume 2: Tax on Finance Transactions and is reproduced with the permission of the publisher,
Practical Law Company. For further information or to obtain copies please contact lisa.newton@practicallaw.com, or visit www.practicallaw.com/financetaxhandbook.
Country Q&A Israel
Tax 2007/08 Volume 2: Tax on Finance Transactions
between 1 July 2005 and 31 December 2006 (similar regulations are enacted from time to time in Israel).
10. What is the rate of capital allowances/tax depreciation; does
it depend on the type of assets?
Depreciation allowances include the following:
Usually 2% to 4% each year for buildings.
7% to 10% for machinery and equipment.
6% to 12% for fixtures and fittings.
15% to 20% for motor vehicles.
7% to 20% for mines and quarries.
25% to 40% for aircraft.
10% to 100% for ships.
2% to 15% for water supplies and other utilities.
5% to 20% for agricultural and forestry buildings and
works.
15% to 33% for computer software, hardware and electronic equipment.
10% for goodwill if it is both:
Usually, a lessor (that is, the owner of the asset or a lessee that
holds a lease for a period of at least 49 years) can claim a regular depreciation rate (depending on the type of asset involved),
which, for a concrete building component, is an allowance of 2%
each year (generally, two-thirds of the value of the real estate).
However, the lessor of a residential apartment can claim depreciation calculated from a larger base or at a higher depreciation
rate (for example, 4%), under certain conditions and restrictions
(section 21(d), ITO, Income Tax Regulations (Rate of Depreciation for an Apartment which is Rented for Residential Purposes)
1989, and Inflationary Adjustments Law 1985).
Lessees can claim deductions for rent due and payable.
13. Is a ruling or clearance necessary or common? If so, provide
brief details.
A ruling or a clearance may be necessary or relevant in special
circumstances, where a legal issue is unclear (for example, the
right to deduct the lease expense or the calculation of tax). In
most cases, such a ruling or clearance is unnecessary.
Securitisation
14. Briefly explain the key features of the tax regime applicable
to securitisations, including details of any specific tax rules
that apply or issues that arise in relation to securitisations.
purchased for payment;
not purchased from a relative of the lessor or from a
foreign resident (unless the tax authorities are convinced that the purchase is essential for the production of income and was conducted on a bona fide level
and for business reasons only).
In addition, the rate of capital allowances/tax depreciation may
be greater under the different regulations (see Question 9).
There are no specific rules under the ITO for taxing securitisations. However, the tax authorities have dealt with the issue of securitisations on several occasions, and recently published rulings
on the issue that set out their position in relation to taxing securitisations in certain circumstances. Therefore, the tax regime that
probably applies for securitisations is the following:
11. Are there special rules for leasing to lessees that do not carry
on business in your jurisdiction?
There are no special rules for leasing to lessees that do not carry
in business in Israel (see Question 9).
Country Q&A
activities of which do not involve renting or a similar activity
(section 2(6), ITO).
The securitisation transaction is classified as a financing
(not sales) transaction for tax purposes.
The amounts received from issuing debentures are transferred from the special purpose (note-issuing) vehicle (SPV)
to the originator.
The originator uses the sums received in consideration for
issuing debentures for its business activities only (including its activities in related companies), and does not, for
example, distribute the sums to its shareholders.
12. How are rentals taxed?
In general, there are two main types of rental income for corporate tax purposes (see Question 1, Corporate tax):
Business income, which is relevant for lessors, the core
business activities of which include the rental of assets
(section 2(1), ITO).
Passive income, which is relevant for lessors, the business
The SPV is a transparent company for tax purposes and all
of its income and expenses are deemed the income or expenses of the originator. Therefore, the transfer of receivables by the originator to the SPV is not deemed a sale of
capital assets and the SPV’s income from the debentures is
deemed the originator’s income.
If there is a difference between the receivables transferred
by the originator to the SPV and the consideration paid by
CROSS-BORDER HANDBOOKS www.practicallaw.com/financetaxhandbook
PLC
39
© This chapter was first published in the PLC Cross-border Tax Handbook 2007/08 Volume 2: Tax on Finance Transactions and is reproduced with the permission of the publisher,
Practical Law Company. For further information or to obtain copies please contact lisa.newton@practicallaw.com, or visit www.practicallaw.com/financetaxhandbook.
Country Q&A Israel
Tax 2007/08 Volume 2: Tax on Finance Transactions
the SPV on the date of such transfer (whether or not the
consideration was paid by cash as a postponed liability of
the SPV to the originator), it can be classified as a financial
expense (discount), and the discount is classified (for tax
purposes) as an interest income or expense in Israel (where
relevant).
The discount may be deductible by the originator in equal
annual amounts during the term of the debenture. The
postponed liability (if any) may be deductible on the date of
payment of the entire debenture or on the date of termination of the agreement between the originator and the SPV,
whichever is the later.
15. Are there any tax-related requirements imposed on a securitisation note-issuing company? If so, briefly explain them.
See Question 14.
16. Are there any tax reasons why a securitisation note-issuing
vehicle should or should not be associated with (for example,
part of the same group as) the originator? If so, briefly explain
them.
There are no tax reasons why the SPV should not be associated with
the originator. Usually, the SPV is a subsidiary of the originator.
Clearances
Country Q&A
17. Is it possible or necessary to apply for tax clearances from the
tax authorities before completing a finance transaction? If so,
briefly describe:
The circumstances in which clearance may be claimed.
Whether obtaining clearance is mandatory or optional.
The procedure for obtaining clearance.
Circumstances in which clearance may be claimed
It is possible to apply for tax clearances (or rulings) from the tax
authorities before completing a finance transaction. For securitisations and other complicated finance transactions, it is advisable to obtain a pre-ruling or tax clearance. However, the application is not necessary in most circumstances.
Generally, a taxpayer’s request for a tax ruling must include all
relevant information and documents relating to the issue (for
example, certificates, statements, evaluations and contracts).
However, the right is limited and the tax authorities can refuse
to grant the request in certain circumstances at their discretion.
Although the tax authorities have not formally set specific rules,
it appears that the main circumstances in which they may refuse
to issue a tax ruling are where:
40
A criminal investigation is being conducted against the
taxpayer.
The taxpayer is considered a hard tax evader (that is, an
assessee that did not pay tax and report lawfully during preceding tax years) or the taxpayer failed to submit tax returns
during the preceding tax years.
On the date of the request, a discussion at the assessment
level is being conducted relating to the same issue, or other
issues concerning the content of the request for a tax ruling.
The tax authorities did not receive sufficient information to
enable them to respond to the request.
The taxpayer requests to receive the tax ruling anonymously.
The answer to the tax issue is clear from the wording of the
law and/or the tax authorities’ rulings.
The issue involves a question of principle that is being
deliberated in court (except for some exceptions).
The issue in question is mainly a factual matter (except for
some exceptions).
The issue in question is the valuation of an asset, a service
or a transaction (except for some exceptions).
After considering the request, the conclusion is that it deals
with a transaction, the main purpose of which is the avoidance or illegitimate reduction of tax.
The request is hypothetical, contentious or concerns a
minor issue.
The tax authorities have other special reasons not to issue a
tax ruling.
Clearance legitimacy
Until 1 January 2006, tax rulings were given according to the tax
authorities’ directives and practice (that is, the tax authorities’
self-interpretation of their powers), and without reference to law.
Therefore, there was no fixed and complete procedure for the request and no limitations existed on the tax authorities’ ability to
refuse the taxpayer’s request or revoke a tax ruling.
From 1 January 2006, an amendment to the tax law granted taxpayers the right to request a tax ruling (sections 158B to 158F,
ITO). Although certain regulations (for example, in relation to collecting a fee) and tax directives relating to the issue have not
been published yet, tax rulings are being issued to taxpayers. The
tax authorities can issue two types of tax ruling:
Tax Ruling in Agreement. This is a tax ruling that is agreed
between the tax authorities and the taxpayer.
Tax Ruling. This is a tax ruling by the authorities that is not
agreed between it and the taxpayer.
The taxpayer can state its case to the tax authorities before it
issues a Tax Ruling (or Tax Ruling in Agreement). In addition,
the taxpayer can appeal a Tax Ruling during its appeal of the assessment, but there is no similar right of appeal for Tax Rulings
in Agreement. The taxpayer cannot revoke its request for a Tax
Ruling, unless approved by the tax authorities.
CROSS-BORDER HANDBOOKS www.practicallaw.com/financetaxhandbook
PLC
© This chapter was first published in the PLC Cross-border Tax Handbook 2007/08 Volume 2: Tax on Finance Transactions and is reproduced with the permission of the publisher,
Practical Law Company. For further information or to obtain copies please contact lisa.newton@practicallaw.com, or visit www.practicallaw.com/financetaxhandbook.
Country Q&A Israel
Tax 2007/08 Volume 2: Tax on Finance Transactions
The tax authorities cannot generally revoke a Tax Ruling (or a Tax
Ruling in Agreement) unless:
The taxpayer failed to submit certain relevant details or
documents.
Foreign residents that have income which was accrued
or produced in Israel if the tax was deducted entirely at
source, and have one of the following:
The circumstances relevant to the Tax Ruling change.
The tax authorities were given false, misleading or incorrect
information.
Disclosure
18. Is it necessary to disclose the existence of any finance transactions to the taxation authorities? If so, briefly explain:
The circumstances in which disclosure is required.
The manner and timing of disclosure.
Generally, every individual or company that earns income (including Israeli-resident individuals and foreign residents that earn
taxable income in Israel) must submit an annual return to the tax
authorities for the relevant tax year (section 131, ITO).
However, certain individuals or companies are exempt from this
obligation (section 134, ITO and Income Tax Regulations (Exemption from the Submitting of Report) 1988). The exemptions
are relevant, in general, to either:
Israeli-resident individuals in certain circumstances.
income derived from a business or an occupation for a
period of not more than 180 days in the tax year;
income under sections 2(2) (employment income) or
2(5) of the ITO; or
income under sections 2(4) (income from interest),
2(6) or 2(7) of the ITO.
Therefore, if the individual or company must submit an annual
return, it must include details of its income, including income
from finance transactions.
The seller of a capital asset must report the sale within 30 days
from the sale date and make an advance payment in relation to
its capital gain tax (if any) (section 91(d), ITO).
In addition, certain transactions and activities must be reported by submitting a special return (section 131(g), ITO and Income Tax Regulations (Tax Planning which should be Reported)
2006).
Reform
19. Please summarise any proposals for reform that will impact
on the taxation of finance transactions described above.
There are currently no proposals for reform.
Country Q&A
CROSS-BORDER HANDBOOKS www.practicallaw.com/financetaxhandbook
PLC
41
© This chapter was first published in the PLC Cross-border Tax Handbook 2007/08 Volume 2: Tax on Finance Transactions and is reproduced with the permission of the publisher,
Practical Law Company. For further information or to obtain copies please contact lisa.newton@practicallaw.com, or visit www.practicallaw.com/financetaxhandbook.
S. Horowitz & Co. advocates, notaries & patent attorneys
S. Horowitz & Co. is one of Israel’s largest and leading corporate
law firms. We provide a comprehensive and full range legal service
to both the international and domestic business community.
Our tax team provides a comprehensive package of services encompassing
the planning, structuring, implementing, negotiating and resolving of tax
issues in a wide range of areas for major foreign, multinational and domestic
corporations from a broad spectrum of sectors:
•
Corporate taxation, including cross-border and domestic mergers and
acquisitions, joint ventures, corporate structuring, reorganizations,
restructurings, venture capital funds, public offerings and private placement
of equity.
•
Tax impact assessment of financial instruments, including linked notes,
receipts and mutual funds.
•
Development and investment, including investment grants and other tax
incentives.
•
•
Taxation relating to project financing and real estate transactions.
•
Employment taxation, including tax planning, pensions, employment
arrangements and other compensation arrangements for employees and
service-providers (ESOPs and ESPPs), national insurance and healthcare
taxes.
•
Individual taxation, including tax status, estate tax planning, wealth transfer,
family trusts and investments.
•
Tax litigation and alternative dispute resolution strategies.
Indirect taxation, including value-added-tax, customs, stamp duties
and import taxes.
For further information, please contact:
Leor Nouman: (e-mail) leorn@s-horowitz.co.il
S. Horowitz & Co. 31 Ahad Ha’am Street Tel Aviv 65202, Israel
(tel) 972- 3 567 0646 (fax) 972- 3 566 0974
