The great international tax reform – Part 3 miscellaneous - opinion

Below we briefly review proposed miscellaneous measures. Other proposals for companies and individuals were outlined in earlier articles.

Calculating taxes (photo credit: INGIMAGE)
Calculating taxes
(photo credit: INGIMAGE)

On November 21, the Israel Tax Authority published a report proposing to reform international taxation rules.

It remains to be seen what will be legislated and when.

Below we briefly review proposed miscellaneous measures. Other proposals for companies and individuals were outlined in earlier articles.

FOREIGN JOURNALISTS AND SPORTSPERSONS

Currently, foreign journalists enjoy a 25% tax rate and per diem expense deductions for 36 months. It is proposed to make this 36 consecutive months, once only, for someone who did not reside in Israel in the prior 10 years (spouse likewise), and only engages in journalism.

OMRI CASSPI has been one of Israel's greatest basketball ambassadors for more than a decade, but the country has to focus on producing more homegrown talent that will stay and play in the local leagues. (credit: DOV HALICKMAN PHOTOGRAPHY)OMRI CASSPI has been one of Israel's greatest basketball ambassadors for more than a decade, but the country has to focus on producing more homegrown talent that will stay and play in the local leagues. (credit: DOV HALICKMAN PHOTOGRAPHY)

Foreign sportspersons enjoy a 25% tax rate and per diem expense deductions for 48 months. It is proposed to make this 48 consecutive months, once only, for someone who is not an Israeli citizen.

STOCK OPTIONS OF IMMIGRANTS

In Tax Ruling 989/18, the ITA claimed that stock (share) options granted to immigrants before moving to Israel are fully taxable if realized after moving to Israel. The law society and CPA Institute objected strongly. The ITA now proposes a climb-down.

STEP UP/STEP OUT

Currently, the ITA allows Israeli residents that receive an inheritance or gift from abroad to request a step up (revaluation) of the cost to market value on the date of the inheritance/gift. This is to avoid double taxation – gift or inheritance or estate tax abroad and capital gains tax in Israel. Now the report proposes imposing a corresponding capital gains tax on inheritances from Israeli residents to recipients abroad. 

Comment: This would be a back door estate tax in Israel, but only if the recipient is abroad. Some tax treaties may forbid such discrimination e.g. the Israel-US treaty.

ENHANCED REPORTING

In the interests of “transparency,” the report proposes various additional reporting requirements, including:

On foreign offshore companies engaged in “round tripping,” i.e. Israeli residents hold over 50%, tax rate up to 15%, in a country lacking a tax treaty with Israel or operating a “territorial basis” of tax, with mainly Israeli source income of assets.

On “special major shareholders” holding 25% if Israeli residents together over 50% regarding directors, profits, various payments, on an expanded Form 150. 

Comment: Strangely, it is proposed this form would replace the need to file a Country by Country (CBC) form where required by the OECD (in apparent contradiction of Israel’s OECD obligations).

On any Israeli resident with foreign assets over NIS 1 million (currently NIS 1,872,000) including “means of decentralized payments” (apparently crypto).

On any Israeli resident who receives a gift over NIS 500,000 from abroad.

On foreign companies with platforms for activity of Israeli residents, to provide upon request information about Israeli residents using it and their customers and transactions.

“In order not to impose more burdensome reporting requirements” the report proposes “reporting more acts and expanding their scope... for taxpayers involved in cross-border arrangements” (Page 64).

Allowing information exchange between the ITA, the Companies Registry and the Anti-Money Laundering Authority regarding ultimate beneficial owners. Currently, this can land civil servants a three-year jail sentence.

Trustees, financial institutions and business service providers to hold and provide the ITA upon request accurate up to date information about trust settlors, beneficiaries, any protector and assets “without legal impediment” or face “sanctions” (page 67). Another committee will continue reviewing this.

BRANCH TAX

The report did not reach a conclusion whether to propose a branch tax on remittances by a branch to its head office, partly in case double taxation may ensue.

Comments: Unfortunately, the proposals entail much bureaucratic form-filling, on the look-out for tax planning.

The ITA claims the Israeli CPA Institute and the Law Society endorsed the proposals. In fact they represent a shotgun wedding after (even) worse proposals were dropped.

Moreover, the proposals miss the big money by ignoring the OECD’s recent (2020/21) twin pillar tax package aimed at larger multinationals. Pillar 1 aims to shift some of the profit from the country(ies) where it was generated to where the consumers are located for multinationals with annual revenues over EUR 15 billion. Pillar 2 calls for a minimum global corporate income tax of 15%. Both of these Pillars could be relevant to Israel, which is an OECD member supposed to adopt OECD recommendations.

The OECD has also introduced a multilateral instrument (MLI or “super treaty”) which amends existing tax treaties (regarding income location and taxability) for countries which sign up to them, including Israel. The MLI effectively bypasses the Knesset - so the report should have mentioned the MLI because the ITA believes in “transparency”.

As always, consult experienced tax advisers in each country at an early stage in specific cases. [email protected] The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.