In this brochure, we will review some of the recent changes in
the Israeli tax field that may impact on the taxation of both
Israeli and non-Israeli individuals and corporations.
Over two years after signing the agreement between the
government of the United States of America and the government of
the State of Israel to improve international tax compliance and to
implement FATCA ("the Agreement"), the
Israeli parliament approved, on August 4, 2016, new tax regulations
for the regularization and the implementation of the Agreement
The Regulations require Israeli financial institutions to
transfer to the Israeli Tax Authority
("ITA") details of the accounts owned by
U.S. residents or U.S. citizens, which were identified by the
financial institutions as such during the years 2014 and 2015
("Banking Details"). Currently, the
financial institutions are required to transfer the Banking Details
to the ITA by September 30, 2016, using an online database. The ITA
also declared that, shortly after receiving the Banking Details
from the financial institutions, the ITA will transfer the
information to the IRS.
In light of the aforementioned, it is highly recommended for
U.S. taxpayers and Israeli taxpayers with undisclosed bank accounts
or undisclosed assets to regularize these accounts or assets with
the IRS and/or ITA before the completion of the mutual information
Management & Control Circular
Recently, the ITA published Addition No. 1 to Circular No.
04/2002 – Guidelines for the Determination of Management and
Control ("the Addition" and
"the Circular", respectively). The
Addition is meant to add guidelines and clarifications to the
Circular, pursuant to the court decisions in recent years.
In the Addition, the ITA reviews several court cases that
considered the questions of management and control over the last
few years, and the rulings in these cases. More importantly, the
Addition includes list of clarifications and guidelines that shed
light on the ITA's interpretation of the court decisions and
its position with regard to the questions of management and
control. Mainly, the ITA emphasizes the importance of a fundamental
examination of the issues of management and control and the person
or body that is the actual decision maker and actual authority in
the corporation. The examination should include a thorough review
of the protocols of the board of directors in order to determine
whether it has the actual authority and experience to make the
material decisions of the company, examining the daily decision
making process and the functionality of the corporation's
Our recommendation is to examine the management and control
issues of current and planned corporations in light of the
Addition, while taking into account that it reflects the
conservative position of the ITA.
Purchased Companies' Losses
Also, recently, a regional court decision was published, in case
no. 42485-03-13 of I-Online Capital (E.O.C) Ltd Vs Assessing
Officer of Tel-Aviv 5 ("I-Online Case"),
concerning the controversial question of the entitlement to offset
the losses incurred by a purchased company ("Purchased
Company"), before it was purchase by new shareholders
("the Purchase"), against income derived
from a new activity, which was transferred to the Purchased Company
following the Purchase ("the
In I-Online case, I-Online was an inactive traded company, which
held accumulated business and capital losses at the amounts of ILS
36 M and ILS 21 M, respectively. During 2003, I-Online was
purchased by a third party, who transferred a new activity into
I-Online, and demanded the offset of the losses against the income
derived from the new activity. The verdict reconfirmed precedents,
according to which the purchase of a Purchased Company is deemed
artificial transaction if the only purpose behind it is a tax
reduction. The court added that the taxpayer must bear the burden
to prove, with conclusive and substantial evidence, that there is
an essential commercial purpose behind the purchase of the
Purchased Company, in order to establish entitlement to the
In addition, the court ruled in I-Online case, that "public
visibility", trading status and trademark advantages are not
enough to prove justified commercial purposes behind the
In our opinion, any purchase of an Israeli Purchased company
with transferred business or capital losses should be carefully
examined and accurately executed in order to enhance the position
of the purchaser with regard to the transferred losses.
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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