Your Taxes: The Paris Agreement and what it means

Paris Agreement was an accord between Israel and the Palestine Liberation Organization whose underlying goal is to copy the EU.

By LEON HARRIS
September 27, 2011 21:41
PM Netanyahu speaks at UN General Assembly

Netanyahu 311. (photo credit: REUTERS)

 
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Last Friday, Palestinian Authority President Mahmoud Abbas and Prime Minister Binyamin Netanyahu both gave dramatic speeches at the United Nations. They were frank and provocative, but as Winston Churchill once said: “It is ‘better to jaw-jaw than to war-war.’”

The same day, Abbas applied to the UN secretary general for Palestine to be admitted as a full member of the UN. The following day, Abbas reportedly announced that the PA is considering reopening the Paris Agreement.

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What is the Paris Agreement all about?

The Paris Agreement was one of a series of agreements in the 1990s between Israel and the Palestine Liberation Organization that stemmed from the so-called Oslo Accords, aka the Declaration of Principles on Interim Self-Government Arrangements, which was signed in Washington, DC, on September 13, 1993.

The Paris Agreement is formally known as the Protocol on Economic Relations between the Government of the State of Israel and the PLO, representing the Palestinian people,” signed in Paris on April 29, 1994.

Main objective

The underlying goal of the Paris Agreement of is to copy the European Union. After two terrible world wars, the EU was set up to bring the main European protagonists into close economic relations to promote peace and avoid war.

This is expressed as follows in the Paris Agreement preamble: “The two parties view the economic domain as one of the cornerstone in their mutual relations, with a view to enhance their interest in the achievement of a just, lasting and comprehensive peace.”



Import taxes and import policy

(Article 3 and Annex 1, Articles 10 and 11)

This is a bone of contention for the Palestinians because it contains security measures. The Paris Agreement says that while Israel remains responsible during the interim period (pending a final peace treaty) for external security, including along the Egyptian and Jordanian borders, border crossings shall take place according to the arrangements included in the agreement. These arrangements aim at creating a mechanism that facilitates the entry and exit of people and goods, while providing full security for both sides.

The arrangements included in this article shall apply to the following border crossings: the Allenby Bridge crossing; and the Rafah crossing.

Pending construction of a port, arrangements for entry and exit of vessels, passengers and goods by sea, as well as licenses for vessels and crews sailing on international voyages in transit to the Gaza Strip and the Jericho area, shall be through Israeli ports in accordance with the relevant rules and regulations applicable in Israel and in accordance with the provisions of the Paris Agreement (see below).

The clearance of revenues from all import taxes and levies, between Israel and the PA, will be based on the principle of the place of final destination.

In addition, these tax revenues will be allocated to the PA even if the importation was carried out by Israeli importers.

Monetary and financial issues

(Article 4)

The Paris Agreement required the PA to establish a Monetary Authority (PMA) in PA-controlled areas. The PMA has the powers and responsibilities for the regulation and implementation of monetary policies. The foreign-currency reserves (including gold) of the PA and all Palestinian public-sector entities will be deposited solely with the PMA and be managed by it.

The new Israeli shekel (NIS) is one of the circulating currencies in the PA areas.

Direct taxation

(Article 5)

Direct taxes generally refer to taxes on income.

According to the Paris Agreement, Israel and the PA will each determine and regulate independently their own tax policies in matters of direct taxation, including income tax on individuals and corporations, property taxes, municipal taxes and fees.

Israel is required to transfer to the PA a sum equal to: 75 percent of the income taxes collected from Palestinians from the Gaza Strip and PA areas employed in Israel; and the full amount of income taxes collected from Palestinians from the Gaza Strip and PA areas employed in Israeli settlements.

The two sides are required to agree on a set of procedures that will address all issues concerning double taxation. (In practice, draft doubletax treaties exist but have never been implemented.)

To sum up, when Palestinians find employment in Israel, Israel transfers at least 75% of the Israeli taxes paid by them back to the PA. This is intended to be generous; for example, when Americans work in London, the UK government does not transfer 75% of the UK taxes they paid to the US government.

Indirect taxes on local production

(Article 6)

Indirect taxes generally refer to VAT and customs. With regard to imports, see above. With regard to domestic activity, the aim was to establish a free-trade area.

According to the Paris Agreement, the Israeli and PA tax administrations levy and collect VAT and purchase taxes on local production, as well as any other indirect taxes, in their respective areas.

The purchase-tax rates within the jurisdiction of each tax administration are required to be identical as regards locally produced and imported goods.

The VAT on purchases by businesses registered for VAT purposes accrues to the tax administration with which the respective business is registered.

There is clearance of VAT revenues between the Israeli and PA VAT administrations. To be acceptable for clearance purposes, special invoices, clearly marked for this purpose, are used for transactions between businesses registered with the different sides.

Labor

(Article 7)

According to the Paris Agreement, both sides will attempt to maintain the normality of movement of labor between them, subject to each side’s right to determine from time to time the extent and conditions of the labor movement into its area.

The placement and employment of workers from one side in the area of the other side will be through the employment service of the other side and in accordance with the other side’s legislation.

Palestinians employed in Israel will be insured in the Israeli social insurance system according to the National Insurance Law for employment injuries that occur in Israel, bankruptcy of employers and maternity leave allowance.

Israel is required to transfer to the PA, on a monthly basis, the (social-security) equalization deductions as defined by Israeli legislation, excluding payments for health services in places of employment.

Israel is also required to transfer, on a monthly basis, to the PA, pension insurance deductions collected from wages of Palestinians employed in Israel and their employers, according to the relevant rates set out in the applicable Israeli collective agreements.

All this is intended to be beneficial to Palestinians and is better than the arrangements found in most cross-border situations.

Agriculture

(Article 8)

According to the Paris Agreement, there is free movement of agricultural produce, free of customs and import taxes, between the two sides, subject to the following exceptions and arrangements.

The official veterinary and plant-protection services of each side will be responsible, within the limits of their respective jurisdiction, for controlling animal health, animal products and biological products, and plants and parts thereof, as well as their importation and exportation.

Industry

(Article 9)

According to the Paris Agreement, there will be free movement of industrial goods free of any restrictions, including customs and import taxes, between the two sides, subject to each side’s legislation.

Indirect tax rebates or benefits and other subsidies to sales shall not be allowed in trade between the two sides.

Tourism

(Article 10)

According to the Paris Agreement, a Palestinian Tourism Authority exercises, inter alia, the following powers in the PA areas: regulating, licensing, classifying and supervising tourist services, sites and industries; and promoting foreign and domestic tourism.

Each side shall, under its respective jurisdiction, protect, guard and ensure the maintenance and good upkeep of historical, archaeological, cultural and religious sites and all other tourist sites, to fit their status as well as their purpose as a destination for visitors.

Insurance issues

(Article 11)

The Paris Agreement requires Israel to transfer the authorities, powers and responsibilities in the insurance sphere in the areas, including inter alia the licensing of insurers, insurance agents and the supervision of their activities, to the PA.

Concluding remarks The Oslo Accords grant the PA broad administrative, legislative and judicial autonomy. And the Paris Agreement lays the framework for economic freedom, a free-trade zone and generous tax and social security rebates back to the PA when Palestinians find employment in Israel.

If the Paris Agreement is renegotiated, the Israelis might not mind if it is part of a broader but secure peace agreement.

Wishing all our readers a happy, healthy and peaceful new year.

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

leon@hcat.co

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