In 2006, special regulations were enacted, providing an
exhaustive list of tax planning acts that must be reported to the
Israel Tax Authority (Reportable Acts). These Reportable Acts
include, inter alia, the sale of property to a "relative"
that creates a deductible loss for the seller, waiving the debt of
a "relative", acquisition of a company with carryforward
losses and others, all in accordance with the conditions prescribed
in the regulations. These Reportable Acts, including the parties
involved and the amounts that were paid, are to be reported using a
special form attached to the annual tax return. Failure to report
is a criminal offense. Moreover, in a situation where a Reportable
Act creates a tax shortfall in a final assessment exceeding 50% of
the tax liability, a deficiency fine of up to 30% of the shortfall
may be levied.
Recently, a draft bill was published to amend the regulations in
respect of acts from 2017 onwards, and for the first time, the Tax
Authority proposes to include a list of acts relating to trusts. It
seems that the initiative to include acts related to the trusts was
born inter alia in the wake of the amendment to the Israeli Income
Tax Ordinance, which came into force in 2014. This amendment
expands the Israeli tax basis regarding trusts, and eliminates
certain exemptions and reliefs. Inter alia, the amendment
stipulates that in circumstances where there is an Israeli
beneficiary in a trust, the trust will be subject to tax and
reporting in Israel, even if the settlor is a foreign resident.
Consequently, Following these legislative amendments, many trusts
were modified. With this regard, Israeli beneficiaries have been
excluded from foreign trusts that were created by foreign
residents. In order to trace these changes and deter trustees and
beneficiaries from taking such actions, the Tax Authority now also
seeks to amend the regulations and apply them to certain acts
relating to trusts. Reportable Tax Acts in relation to Trusts.
Below is a summary of acts that will be considered Reportable
Acts according to the proposed amended regulations:
1. An Israeli resident that was a beneficiary of a trust and was
excluded therefrom, received a loan or an asset from someone who
was or is still a trustee or beneficiary in the trust, free of
charge, and the person transferring the asset or granting the loan
was a foreign resident at any time between the exclusion date and
the date of the Reportable Act.
2. An Israeli resident beneficiary received a loan from the
trust or, alternatively, a trust asset served as collateral for a
loan taken by the beneficiary.
3. Abeneficiary provides management or consulting services to
the trust or to companies held by the trust; acts in a managerial
position of a company or an enterprise held by the trust or is part
of the trust's investment committee or holds another
administrative role in the trust.
4. The exclusion of an Israeli resident from being a beneficiary
in a trust, whereas, if there was no exclusion, the trust would
have been taxable in Israel.
The said Reportable Acts will require notification to the Tax
Authority in Israel when filing the annual tax return, either by
the beneficiary or the trustee, as determined in the regulations.
It is important to emphasize that at this stage this is only an
initial draft of of the amended regulations.
Originally published onSeptember 20th,
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Israeli tax law is changing regularly. There were various amendments to the Israeli Tax Code, including the reduction of tax rates. The following summarizes Israeli tax rates and other tax information for 2016.
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