Your Taxes

Delayed reporting, back-to-back loans.

By LEON HARRIS
An accountant calculator taxes 370 (photo credit: Ivan Alvarado / Reuters)
An accountant calculator taxes 370
(photo credit: Ivan Alvarado / Reuters)
On August 29, the Israel Tax Authority announced that its director has granted a special concession allowing businesses to postpone their monthly tax and VAT reporting and payments for August by one day from September 15 to September 16 Not to be outdone, the finance minister announced that the deadline has now been pushed back again to September 29, after Succot, saying: “This is a relief for small and medium businesses... to help them get over cash-flow shortages over the holiday period.”
It remains to be seen if the National Insurance Institute follows suit; currently their due date is September 16.
On another matter, in an interesting judgment, the Jerusalem District Court rejected the use of back-to-back loans as being overaggressive tax planning in the specific circumstances of the case: A company deposited NIS 5 million at a bank, which then made a loan of NIS 5m. to a shareholder of the company. The tax authority said this was a roundabout arrangement to conceal a totally different transaction – either a dividend or a management fee from the company to shareholder.
In this way, it was possible to (illegally) evade tax of 25 percent if the payment was a dividend, or 50% if the payment was a management fee.
In fact, the tax authority said it was a management fee and claimed tax of 100% (plus penalties and interest presumably) after grossing it up – because the shareholder must have received a fee of NIS 10m. before tax to end up with NIS 5m. after tax.
The taxpayer claimed that an earlier Supreme Court case allowed back-to-back loans. The judge didn’t agree in this case because the arrangement wasn’t properly documented.
So the moral is: Don’t overdo tax planning, and do document everything properly; transparency helps.
Wishing all our readers a gmar hatima tova.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
leon@hcat.co
Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.