Corona grant repayments to the Israeli Tax Authority - opinion

The grants were a desperately needed lifeline for many Israeli businesses

Illustrative photo of Israeli money (photo credit: MARC ISRAEL SELLEM)
Illustrative photo of Israeli money
(photo credit: MARC ISRAEL SELLEM)

Coronavirus is on the increase, attention is turned to Ukraine, and yet the Israeli Tax Authority (ITA) sees fit to start enforcement proceedings to recover corona grants overpaid to businesses. 

The grants were a desperately needed lifeline for many Israeli businesses, coupled with unemployment pay for laid off (furloughed) employees, quarantine compensation and mass vaccinations. 

New enforcement drive

On March 9, at the request of Knesset members and representatives of the self-employed, the ITA published details of when and how it intends recovering excess corona grants paid out to businesses and major shareholders (10% or more) of companies. Below are some points from the ITA.

The enforcement relates to corona grants overpaid to freelancers and major shareholders based on taxable income in 2018 or 2019, whichever is optimal, and to overhead (fixed cost) participation grants (not companies and partnerships), where revenues in 2019 did not exceed NIS 300,000. In other words, smaller businesses may apparently be affected….

The period allowed for voluntarily returning overpaid grants ends on March 31, 2022 whereupon the ITA will step up its enforcement/recovery drive to claw back the money. 

Jerusalem's usually busy downtown is seen empty, as businesses are shuttered during Israel's third lockdown. (credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)Jerusalem's usually busy downtown is seen empty, as businesses are shuttered during Israel's third lockdown. (credit: MARC ISRAEL SELLEM/THE JERUSALEM POST)

Main focus

In the quarter from April 1 to June 30, 2022, the ITA says it is focusing its enforcement activity to recover overpaid grants from those who received grants for three two-monthly periods (i.e. 6 months) if revenues increased instead of decreased compared with the base period, or if the revenue decrease was under 10%. 

This is because overhead participation grants were generally meant to be paid if revenues decreased by at least 25%, and other grants to the self-employed or major shareholders were only meant to be paid if revenue decreased by at least 40%. 

Furthermore, excess corona grants repayable are index-linked to the rate of inflation, which is starting to accelerate due to supply chain problems and the Ukraine war. The ITA doesn’t mention interest over and above the rate of inflation on grants repayable…

Process and appeal

How will the ITA move in on businesses that received a corona grant overpayment? First the ITA will send out an official notice and will wait 30 days. (Comment: unfortunately the Israeli postal service struggles in many areas to deliver tax post within 30 days….)

If the taxpayer appeals the notice, each appeal will apparently be considered on a case by case basis and a reasoned reply will be given. If that fails, further appeal may be possible to the overhead cost committee or to the District Court for grants overpaid to the self-employed or major shareholders.

Comment

Some may recall that when covid-19 first afflicted us in early 2020, there was much public and governmental criticism of ITA delays in administering corona grants and getting started paying them. Countries like the USA and UK were quicker off the mark.  The ITA replied that it needed time to get it right. 

Now it seems the ITA was slow but they still didn’t get it right and businesses are paying the price. Hi-tech may be booming, but much of the economy is still suffering from a decline in income caused by corona, for example in tourism and hospitality. 

And our highly informal inquiries with Tel Aviv taxi drivers reveal that they remain moody about business prospects, a veritable business barometer that we and the ITA might do well to heed….

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

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The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd