Israel may tax income earned on a plane


Dr. Avi Nov, Adv.

January 2013

In a recent tax case, an Israeli court ruled that income earned on an Israeli plane by a foreign resident pilot may be taxable in Israel.

In this court case, an Israeli citizen worked as a pilot of El Al, an Israeli airline company. It was accepted by the parties that he was a US resident. However, the Israeli Tax Authority argued that he was liable to Israeli tax on income derived from work performed "in Israel", according to Section 4A(a)(4) of the Israeli Income Tax Ordinance. The issue in this case was whether the work on the El Al jet may be considered as work done in Israel, according to Section 4A(a)(4) of the Israeli Tax Ordinance.

The judgment was delivered by Judge Altuvia Magen, who examined the economic-allegiance doctrine. According to this doctrine, a country is entitled to tax a taxpayer who derives income due to the rights, security and sovereign infrastructure accorded to him.

Judge Altuvia Magen then referred to Section 2A of the Israeli Area of Jurisdiction and Authority Law, 1949, which states: “Every airplane or vessel, wherever it may be, which is registered in Israel, shall be regarded as being part of Israeli territory for the purposes of jurisdiction of the law courts.” The rationale of this is to protect the public from an ungovernable situation. Hence, those sitting on the plane are protected as if they are in Israeli land.

The court ruled that the Knesset intended that the “place” mentioned in Section 4A(a)(4) of the Israeli Tax Ordinance, means both the physical place and the jurisdictional place.

Fundamentally, the US resident pilot was performing his work in Israel, due to the economic allegiance doctrine. Therefore, the court reached the conclusion that income earned on the Israel plane by the US pilot was taxable in Israel.

For other tax cases, see: Israel Case Law  

Dr. Avi Nov Law Offices, Israeli & international tax law 
*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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