The Israel Tax Authority is seeking to boost state revenues amid the budget deficit and is preparing to introduce a new measure: The imposition of VAT on reinsurance transactions and overseas credit arrangements. A similar measure has already been applied to credit card companies, which were required to record financial provisions amounting to hundreds of millions of shekels. The credit card companies appealed the decision to the Supreme Court, whose ruling on the matter is expected to set a precedent. The issue was raised during the Israel Institute of Certified Public Accountants’ conference in Eilat.
During a panel moderated by Gal Greenberg, Head of the Tax Department at KPMG Israel, David Shilon, Director of the Professional Department at the VAT Authority, revealed that the Israel Tax Authority had considered expanding the range of transactions subject to VAT as part of the legislative amendment to include new areas. These include transactions in which Israeli insurance companies purchase reinsurance coverage from abroad, as well as financing transactions in which Israeli banks borrow from foreign financial institutions.
Reinsurance is an essential mechanism for distributing risks among insurance companies worldwide, particularly in cases involving earthquakes, natural disasters, and other exceptional events. Imposing VAT on such transactions would significantly increase insurance companies’ costs. Prof. Eli Gilbai, tax adviser to the Israel Insurance Association, noted that if the measure is implemented, the additional costs are expected to be passed on to the public through higher insurance premiums.
President of the Israel Institute of Certified Public Accountants Chen Schreiber said: “This move should raise a red flag for every citizen, as the costs imposed on insurance companies and banks, estimated at billions of shekels, will ultimately be passed on to the public through higher insurance premiums, credit costs, and additional financial services. The result will be a direct impact on the cost of living.”