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The Tel Aviv District Court handed down a decision a few days ago rejecting the Israel Tax Authority’s (ITA) position on the conveyance of real estate properties to trusts. This decision dramatically changes the taxation of trusts in Israel.
The Knesset recently approved the Law for the Reduction in the Use of Cash. This law imposes bans and restrictions on the making and receiving of payments using cash and checks at the sums therein prescribed.
The Israel Tax Authority (ITA) recently published a draft circular for public comment on the issue of classifying residential rent income. The ITA states that, according to its reasoning, income from the leasing of 10 or more apartments should be deemed business income.
In July 2017, the Fair Rent Law was enacted, an initiative of MPs Stav Shaffir and Roy Folkman. The main objectives of the New Law are to regulate the relationship between tenants and landlords and to define the minimum conditions for an apartment to be deemed “fit for dwelling.”
Release of Information to Foreign Tax Authorities Two pending amendments to Israeli tax legislation will, if adopted, permit the exchange of information about taxpayers in a multinational context. The passing of these amendments will also allow for implementation of multilateral agreements for ‘exchange of information’ regarding individuals and corporate tax payers.In addition, a recent change in the Law on Prohibition of Money Laundering (2000), subjects legal and accounting professionals to a number of KYC (‘Know Your Client’) requirements from now on. Revised Tax Amnesty Arrangement Published and Now in Effect On 7 September 2014, the Israeli Tax Authorities issued a new general voluntary disclosure arrangement, effective until 31 December 2016. The new procedure also covers indirect taxes (VAT, import duties, and real property transfer taxes).Anonymous applications may be submitted until 6 September 2015 as part of a transitional package that has been put in effect. In such a case the taxpayer’s identity is disclosed only upon approval of the application. This transitional procedure includes an expedited track for ‘modest taxpayers’, having an unreported capital of up to NIS 2 million and a taxable income of less than 0.5 million NIS. It is not possible to file an application anonymously for this simplified procedure.Losses, exclusively incurred during the tax years of the disclosure, may be offset.It has been announced that this amnesty shall be the last clemency offered.
On 21 October 2014, the Haifa District Court handed down its decision in “Yael Zor v the Tax Assessor Haifa” (12-01-19466) concerning temporary residency abroad.The case relates to a senior employee of a multinational enterprise the shipping company, Zim, who worked in Hong Kong for a subsidiary of the group from January 2006 to August 2008. The employee lived abroad for a period of less than 3 years and, afterwards, resumed tax residence - together with her family - again in Israel. When the employee returned to Israel, she filed an application for the refund of the taxes that her employer had continued to withhold on her salary during the period that she had lived in Hong Kong. The tax authorities denied the tax refund. Instead, they issued an assessment qualifying the taxpayer, during the years 2006 to 2008, as an “employee overseas” according to Section 67 A of the Income Tax Ordinance and its Regulations (“Earner of income derived from work performed outside Israel”) 5743-1987; and therefore they assessed tax on the income earned abroad. The tax authorities’ position has always been that the tax residency may only end when a person is outside of Israel for a period of at least 3 years. The Court decided in favour of the taxpayer and instructed the tax authorities to refund the tax withheld.The Court considered that the 2003 reform of the personal income tax made the determination of the residence of a taxpayer crucially important. The determination of tax residency based on the “place of the centre of life” demands a qualitative assessment besides the dry legal presumption of residency based on the number of days that a taxpayer is present in Israel in a given year and previous years. The presumption may be disproved by the taxpayer or by the tax authorities based on factual circumstances, reminded the Court. Consequently, the Court determined that even though the requirements for legal presumption of residency were met, the taxpayer successfully proved that she was not a resident of Israel. For this purpose, the Court took into account various factual considerations to determine the place of centre of life, such as:- that the taxpayer worked in Hong Kong;- the family had a bank account in Hong Kong;- the medical insurance covered the family members during their stay abroad and for this purpose it coverage was expressly extended;- the taxpayer’s children studied in Hong Kong;- the family lived in a rented apartment in Hong Kong which was entirely at their disposal; and- the family had sold their cars in Israel before moving abroad. The Court attributed also substantial weight to the subjective intentions of the taxpayer and her family measured by the fact that the husband had resigned from his employment in Israel for the purposes of the family’s relocation and that the couple's house in Israel had been rented out long term.