Here’s a brief round-up of recent tax cases and developments in Israel.
The budget package of laws passed the Knesset on November 5, and the Economic Efficiency Law reflecting this was published on November 15. It includes tax, national insurance and other measures mostly technical in nature. These include concessionary tax rates for “trapped” profits (30% of the company tax rate otherwise applicable but not less than 6%). This relates to certain industrial/hi-tech profits that used to be exempt if retained within an approved/preferred enterprise up to 2011. This is conditional, inter alia, on reinvesting a certain amount (per a formula) in its industrial enterprise within five years. Proposals affecting purchase tax rates for Israeli real estate are being separately legislated.
National insurance form 100
Starting with the October 2021 salary, every employer in Israel (except home help employers) must start filing online every month form 100 of the National Insurance Institute. This is in addition to form 102 reporting salaries paid and withholding of taxes and national insurance from salaries. The need for the form emerged when the National Insurance Institute found it lacked recent data to make corona layoff payments. The form therefore asks for a range of employment facts for each employee – what they do, when they started, work hours, vacation entitlement, etc. The payroll software packages in Israel are being adapted to help facilitate filing Form 100.
The Israel Tax Authority issued a letter to employers, taxpayers, representatives and service bureaus on November 9. It says that employers must treat payments by the National Insurance Institute upon birth or to protect pregnancy like salary and make the relevant pension and savings (hishtalmut) contributions thereon. This should apparently help protect the employees’ pension rights and related Israeli tax breaks – typically a 35% tax credit within limits for the employee’s contribution and exemption for the Bituach Leumi contribution.
Cash payments – new anti money-laundering rules
On August 1, 2022, the upper limit on cash payments involving a business will decrease from NIS 11,000 to NIS 6,000, and the upper limit on cash payments between private individuals will decrease from NIS 50,000 to NIS 50,000. Otherwise fines of 5%-25% may be imposed. This follows a new Order issued by the Knesset Constitution and Law Committee on October 27, 2021.
Supplementary corona grant for badly affected businesses
The Finance and Economic Ministry approved a supplementary corona fixed cost grant for businesses badly affected by corona, on November 7. The formula for existing grants does not compensate for all fixed overhead expenses such as rent. So, a supplementary grant may soon compensate for rental expenses exceeding 17% of sales revenues in 2020 if they were within 90% of the 2019 figure, the business was eligible for at least three corona grants and the sales shortfall was at least 80%. If all conditions are met, the grant may amount to NIS 100 per meter up to NIS 120,000.
Court slams Israel Tax Authority
The Israel Tax Authority (ITA) came in for heavy criticism from the Israeli District Court in the case of Azrieli Fund (Israel) vs. Tel-Aviv 5 Assessing Officer (Ayin Mem 59050-01-20, Sep 9, 2021).
The Azrieli Foundation carries out various charitable activities and is financed by dividends on a 5.69% shareholding in Azrieli Holdings Inc (AHI) which is involved in the well-known shopping mall chain. Charities in Israel generally do not pay tax unless they control a business. In this case, the 5.69% shareholding carried no voting rights, but some of the officers of the charitable foundation were also officers of AHI. Therefore, the ITA claimed the charitable foundation was in business and assessed the dividends to 25% tax. The court upheld the charitable foundation’s tax exemption on the dividends, because the shareholding was so small and came without voting rights, therefore it did not control AHI. The Judge (Y. Saroussi) awarded costs against the ITA because of its behavior.
Court testimony by video conference
In the case of Yaron Meir vs Eilat Assessing Officer, the District Court ruled that a witness who resides in New Zealand may be cross examined in an Israeli Court by video conference – in this case by Skype not Zoom. The witness claimed he could not travel to Israel due to Corona restrictions, the ITA claimed otherwise but was over-ruled based on Section 72(b) of the Civil Proceedings Regulations (Ayin Mem 21579-01-20, March 23, 2021).
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.