Your Taxes: E-commerce VAT hit

The Israeli Tax Authority (ITA) has just published a tax ruling which imposes 17% VAT on certain foreign e-commerce suppliers with Israeli agents. The ruling applicant did not agree to the ruling.

By LEON HARRIS
June 6, 2019 22:16
2 minute read.
US tax form

US tax form (illustrative). (photo credit: INGIMAGE)

 The Israeli Tax Authority (ITA) has just published a tax ruling which imposes 17% VAT on certain foreign e-commerce suppliers with Israeli agents. The ruling applicant did not agree to the ruling.

Facts of the ruling:
An Israeli company is engaged in marketing and agency activities via a website for foreign companies which supply Internet marketing for foreign distributors regarding their products for a commission. The website is aimed at Israeli customers and is in Hebrew, including the products displayed, a search engine and delivery options in Israel. The operation of the website is the sole responsibility of the company. An Israeli customer who clicks a link on the website is referred to the website of the relevant supplier to buy the product directly. The company does not take title to the products.

The marketing company’s request:
The company requested confirmation that its commission is liable to 0% VAT under a section which aims to avoid double taxation – 0% tax if the commission is included in the landed price of imported goods for Israeli customs and VAT purposes (VAT Law Sec. 30(a)(5)). This applies even if the service concerned partly relates to Israeli residents according to the relevant section.
The ruling result:
The ITA will only agree to 0% VAT on the marketing commission if the following conditions are met:
It is proven that the customs value for the products includes the commission;
The customs value exceeds $75, the threshold amount for import taxes (customs section 614/8);

What is the status of Tax Rulings in Israel?
The ITA’s website says that the public at large can expect the ITA will deal with issues described in rulings in a similar manner in similar circumstances and subject to similar conditions, so that in practice the position of the ITA is presented regarding the material issues described.


Comments:
The 17% VAT negates the $75 customs exemption which will affect ordinary Israelis who buy imported products online. This is an economic policy change with no due process.
 
Making use of the Hebrew language a taxable event is highly controversial and easily avoided by keeping to English or any other language. Moreover, imposing the VAT liability on e-commerce marketing fees is discriminatory as there is no mention of marketing fees relating to traditional trade. 
 
The ITA took advantage of a ruling request to issue a different ruling and create a precedent against the will of the applicant and the public.
 
It is unclear whether the ITA’s position would be upheld in a law court. It is also unclear whether Israel’s free trade agreements with the EU, US, Canada, Mercosur and other countries allow such a back-door tax on imported goods.
All in all, it would be preferable to go to the Knesset for an amendment to the law in a democratic fashion. 


Bottom line:
A Yiddish website would be good tax planning!
 
As always, consult experienced tax advisers in each country at an early stage in specific cases.
 
leon@h2cat.com
The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.


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