Your Taxes: What the supermodel didn’t want us to see

Subject to any tax treaty, an Israeli resident for Israeli tax purposes is an individual whose center of living is in Israel, taking into account the person’s family, economic and social links.

May 16, 2019 22:43
4 minute read.
Approximately 170,000 Americans live in Israel.

Approximately 170,000 Americans live in Israel. In total, more than one million U.S. citizens and green card holders – who both live overseas and own more than 10% of a foreign corporation – faced the prospect of paying the tax.. (photo credit: REUTERS)


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With every page watermarked “behind closed doors” and with great drama, the District Court judgment on the tax affairs of supermodel Bar Refaeli finally emerged on May 12 (648-02-16). The court turned down the taxpayer’s application to keep secret her income and the names of her witnesses.

The basics – who is an Israeli resident?

Subject to any tax treaty, an Israeli resident for Israeli tax purposes is an individual whose center of living is in Israel, taking into account the person’s family, economic and social links. A rebuttable presumption of Israeli residency will apply if the individual is present in Israel at least:

• 183 days in a tax year ending 31 December;         or
• 425 days in the three latest tax years,             including 30 days in the current year.

The facts in this case:

The case concerned a supermodel who claimed to be a non-resident for Israeli tax purposes in 2009 and 2010, and hence exempt from Israeli tax on foreign earnings in those years. She lived in Los Angeles and New York with her boyfriend, a Hollywood star. They never married or had children. The taxpayer later returned to Israel to marry someone else. An earlier Israeli tax ruling said she was non-resident in 2007. She was present in Israel 424 days in 2008-2010, consisting of 108 days in 2008, 185 days in 2009 and 131 days in 2010.

Why did the taxpayer stay 185 days in Israel in 2009?

This triggered the review of the center of living criteria. The law says that part of a day in Israel counts as a full day. It seems the taxpayer did not count all the travel days to and from Israel.

What the Court Decided:

The court ruled that Israel was the taxpayer’s center of living, making her resident and taxable on worldwide income in the years in question. What were the reasons?

The judgment opens with criticism that the parties did not act in a restrained and matter-of-fact way. Manners also count.

In addition, the taxpayer claimed to be resident nowhere and declared to the US IRS that she was Israeli, and not a US resident as she was apparently in the US under 183 days per year. She had accommodation available in her parents’ home in Israel and typically went there after landing back in Israel on her 10-12 visits per year. She had other accommodation available in Israel. She bought two apartments in a new project in Israel and took an interest in the interior design and planning with an architect. In the US, she did not own property and would not stay in her boyfriend’s home when he was away. All this suggested she had several permanent homes in Israel and none elsewhere.

She also had several cars in Israel and an Israeli driver’s license, but no car or driver’s license in the US. She used an Israeli credit card and an Israeli health fund (kupat holim). She did have a foreign disability policy but this noted she had an Israeli doctor. She traveled on an Israeli passport. Significantly, international earnings went into a Cyprus company, but there was no evidence it was controlled and managed outside Israel. The court ruled it was controlled and managed in Israel, making the company resident and fully taxable in Israel. This also meant the taxpayer had economic interests in Israel. Her Israeli business activities, apparently limited, were managed by a company of her mother. She had a close and warm relationship with her family, visiting on birthdays and festivals. She also conducted social and philanthropic activities in Israel for Project Sunshine and Variety Israel.
In short, she didn’t make a clean break with Israel.

The taxpayer claimed residency nowhere is okay if tax laws in each country were different. The court ruled this might be possible for someone sailing in a yacht but even a yacht has a home port – Israel in this case.

It remains to be seen if the case will be appealed. Separate proceedings are reportedly also under way.

It takes four tax years to stop being an Israeli resident for Israeli tax purposes. Check any tax treaty. Always keep an Excel diary and/or Interior Ministry printouts of trips to and from Israel. If you stay an Israeli resident, generous per diem travel deductions of $80-$166 per day are available aside from foreign tax credits.
By the way, she earned around NIS 16 million in those two years.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd

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