Israeli Tax Shelter Rules 

Dr. Avi Nov, Adv.
 
January 2008

Israeli Tax Shelter Rules created a blacklist of "reportable tax planning acts." The purpose of this blacklist is to assist the tax authority in its dealing with aggressive tax planning which it feels is improperly exploiting the tax laws. If you completed any reportable tax planning act on this blacklist, you must report it on a special form that is added to your annual tax return.

Briefly, the types of transactions that must be reportable in specific circumstances include transactions with related bodies, payment of debts to related bodies, the purchase or holding of companies that are resident in countries with which Israel does not have a tax treaty or the receipt of funds from such companies, as well as the purchase or holding of the means of control in companies that are resident in countries with which Israel does have tax treaties and most of whose assets are located in Israel, or the receipt of funds from such companies. 

Examples of reportable tax planning acts:

  • Management or advice expenses of NIS 2 million or more in favor of a related party for management or advice orsomething similar, if it reduces tax payable.
  • The sale of asset to a related party at a loss of NIS 2million or more, which is partly or wholly utilized within 24months after the year of sale.
  • The sale of asset received as a gift from a related party if the gift was exempt in Israel, the sale takes place within three years, and generates a loss of NIS 2 million or more.
  • The acquisition of 50 percent or more of the means of control of an entity with losses of at least NIS 3 million capable of utilization under the tax law.
  • The acquisition or holding by an Israeli resident of 25percent of an entity resident in a country that has no tax treaty with Israel if any income is taxed there at a rate below 20 percent, or the receipt of NIS 1 million in the year from such an entity.
  • The acquisition or holding by an Israeli resident of 25 percent of a treaty-country entity, or the receipt of NIS 1 million from such an entity.

Operating rules:

The non-reporting of tax planning devices that are included in the list is considered a criminal violation.

The assessing officer may issue a partial best judgment assessment of your income and tax due, disregarding a reportable transaction.

If the reportable transaction was considered to be artificial or fictitious, a deficiency fine of 30 percent of the shortfall may be levied, and additional fines and other sanctions are possible.
 
Dr. Avi Nov Law Offices, Israeli & international tax law 

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*This article is intended for informative purposes only and is in no way to be construed as tax advice or a legal opinion 
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