Israel and Palestinian Authority Tax Deal

Tax Evasion| Value Added Taxes| Tax Authorities

Dr. Avi Nov, Adv.

July, 2012

Israel and the Palestinian Authority concluded recently agreements with respect to the transfer of goods between Israel and the Palestinian Authority and related tax procedures.

The arrangements are the result of professional consultations conducted between Israel and the Palestinian Authority over the past few months, and are intended to facilitate the implementation of previous agreements in the economic sphere, tax issues such as tax evasion, value added taxes, and in particular the "Paris Protocol".

Reducing Tax Evasion

The purpose of the arrangements is to introduce mechanisms that better facilitate the movement of goods between Israel and the Palestinian Authority, and that support Israel and the Palestinian Authority efforts in reducing illegal trade and tax evasion. The arrangements will further assist in enhancing the Palestinian tax system and thus aid in strengthening the economic base of the Palestinian Authority.

Value Added Taxes

According to the arrangements, the tax clearance mechanism regarding Value Added Taxes, purchase taxes and import taxes will be based on the actual and accurate transfer of goods between Israel and the Palestinian Authority, replacing the current practice of calculating such tax clearances on the reported transfer of such goods.

Exchange of information

To support these efforts, the Israeli tax authority and the Palestinian tax authority will enhance the exchange of information regarding the actual transfer of goods. Further, in order to improve monitoring and ensure efficiency in the movement of goods, advanced technologies will be employed, Palestinian storage facilities will be established, and the transfer of goods will be generally conducted via designated Israeli crossings.

In addition, pipelines for the safe and exclusive transfer of petroleum products from Israel to the Palestinian Authority will be constructed. The implementation of the new arrangements will commence on January 1, 2013, and will be monitored by a joint team of experts, comprising of representatives from both parties.

The cooperation between the Israeli tax authority and the Palestinian tax authority is intended to assist in fighting tax evasion, in increasing the revenues of the Palestinian Authority from the proper collection of taxes, and in reducing illegal trade.