(photo credit: Associated Press)
Organization of Economic Cooperation and Development Secretary- General Angel
Gurria on May 10 announced that the OECD’s governing council had decided to
accept Israel as a full member. Israel is thus becoming a member of a
prestigious economic club with only 34 members, considered the leading economies
of the world. Is this a big deal? Finance Minister Yuval Steinitz clearly
thought so, saying: “Israel’s accession to this prestigious organization is
possible due to a responsible and balanced economic policy, led by governments
of past decades.
This policy included the reduction of Israel’s debt,
monitoring of fiscal policy and the development of capital markets. Israel’s
accession to the OECD brings great honor to the Israeli economy and fills our
hearts with pride.”
Fortunately, Steinitz added: “However, although this
important day is a time for celebration, we are only at the
Israel will be required to continue to demonstrate its
economic strength and stability, and from today, also meet mandatory rules and
In recent years, OECD teams of experts reviewed Israel’s
commercial and tax legislation in conjunction with every government ministry. A
Finance Ministry press release on May 10 anticipated ramifications from Israel’s
accession to the OECD, including the following: • Attraction of foreign
• Positive influence on Israel’s credit rating.
Israel will be required to meet OECD standards for activities in
markets (OECD double-taxation-avoidance agreement, adopting OECD
laboratoryquality rules and anticorruption rules) and will become a full
in the establishment of new international standards.
• Learning from the
“best practices” of member countries in the organization.
social needs and establishing ways to decrease inequality and social
• Implementing reforms in the area of environmental protection,
including the improvement of environmental quality and prevention of
water, air and sea.
What about the tax side? As indicated above, Israel
will be required to meet OECD standards. In particular, the OECD has
model tax convention (referred to above as a double- taxation-avoidance
agreement) and a detailed commentary thereon.
However, now that Israel is
a member of the OECD, it will be more difficult for an Israeli tax
officer to read the commentary and then do the opposite.
blurb to the OECD model convention states: “Member countries, when
revising bilateral conventions, should conform to this Model Convention
interpreted by the Commentaries thereon and having regard to the
contained therein... and their tax authorities should follow these
as modified from time to time...
subject to their observations
So if an Israeli tax official disagrees with the OECD
commentary, he must still follow it unless the Israeli government has
reservation or observation. So far, the Israeli government apparently
entered any reservations or observations on the model convention; this
have diplomatic as well as fiscal consequences.
We await a court case in
this area. When the UK joined the EU, it took a while for the British to
used to EU law on top of their own. It remains to be seen what happens
principles and Israeli law.
E-commerce example? An example of where OECD
tax rules may now prevail is that of electronic commerce on the
doesn’t have any specific rules on this, but the OECD model convention
According to the OECD, a permanent establishment (taxable
fixed place of business) does NOT include an Internet site, ISP hosting,
providing a communication link, advertising of goods and services,
information through a mirror server, gathering marketing data and
information. But a permanent establishment does include an unmanned
e-tailing sales and commerce over the Internet.
To sum up Israel has
entered a brave new world requiring it to play by internationally
of the game in economic matters. It is probably like the FIFA World Cup
Africa: players who foul, get a yellow card, followed by a red one.
let any background noise put you off – things have changed.
consult experienced tax advisers in each country at an early stage in
firstname.lastname@example.org Leon Harris is an
international tax specialist
at Harris Consulting & Tax Ltd.