Businesses in southern Israel are affected by the hostilities.

Production and sales are down, employees stay at home to look after the kids and there are casualties. Damage to property and inventory is compensated under existing regulations, but what about lost business? Recently we have discussed proposals that were floated.

Fortunately, the Knesset Finance Committee has approved regulations regarding the payment of compensation to some affected businesses. The compensation fund is administered by the Israeli Tax Authority (ITA), which issued an announcement on August 3.

The regulations aim to compensate businesses in the South that are affected by the security situation prevailing between July 8 and August 31 or the end of Operation Protective Edge, whichever is earlier. They follow intensive discussions between the Treasury, the Histadrut labor federation and other professional bodies. The compensation will apply to businesses within a 40 kilometer radius from the Gaza Strip. Budgetary constraints apparently prevented a wide area being compensated.

With a view to providing a “rapid response” to affected businesses in the 40 km. area, three alternative “green channels” are offered.

First is the salary green channel. An employer can request reimbursement of salary paid to employees who did not arrive at work due the instructions of the IDF Home Command. who had to look after children under the age of 14 due to the closure of educational facilities due to instructions from the IDF Home Command or the local mayor.

Note: The ITA says the compensation will only be given to one parent – but since the compensation will be paid to employers, it is unclear which parent’s employer will be denied this compensation.

When paid, this compensation will be 132.5 percent of the basic salary of the employee. There will be compensation for all employees living within 7 km. from the Gaza Strip. The compensation will apparently also be available regarding disabled people unable to reach their work.

Second is the revenues green channel. A business owner can claim reimbursement regarding reduced revenues (turnover) due to the security situation, using a formula that compares revenues reported for value-added tax purposes this year and last year. Maximum compensation on the revenues channel is NIS 3 million, rising to NIS 4m. if hostilities continue after August 15.

Third is the expenses green channel. A business owner can claim compensation for “operational damage.” Maximum compensation on this channel is NIS 3-4m. as above.

Fourth, there is a so-called “red channel” for businesses within 7 km. of the Gaza Strip. They can instead opt for proven loss of profits, having regard to their activity.

Fifth, specific relief is available for specific sectors up to NIS 3-4m. as above. Hotels and event locations can claim compensation for September and October if they can prove that bookings are down or canceled. For agriculture, fast relief is promised, based on a formula that takes into account the distance from Gaza.

Sixth, start-ups that began activity by July 1 can choose between the salary and expense green channels.

A precondition for all channels is payment of salaries to employees who are absent due to the security situation.

More details are in the regulations, and forms and procedures should be published shortly.

When will affected businesses see the money? The ITA says it will act immediately to make payments on account at the rate of 80% of the compensation paid to the same business regarding Operation Pillar of Defense. However, that was a much shorter campaign that took place November 14-21, 2012. The ITA will open a telephone help line.

Comments: Affected businesses within the 40 km. radius from the Gaza Strip will need time and patience to remedy the damage and check which compensation claim is best for them. Affected businesses beyond this radius will need to check whether any compensation is available for damaged property under the general law. Wishing all our readers a peaceful time ahead.

As always, consult experienced tax advisers in each country at an early stage in specific cases.


leon@hcat.co

The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.

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