Immigrants to Israel under fire from reportable tax positions

Published date07 January 2021
AuthorLEON HARRIS
Date07 January 2021
What are reportable tax positions?

A reportable income tax position is a position contrary to a position published by the ITA if the tax advantage exceeds NIS 5 million in the tax year or NIS 10 million over four years.

However, no reporting is needed from certain Israeli charities, nor from individuals or companies with income below NIS 3 million or capital gains below NIS 1.5 million in the tax year.

Reportable income tax positions must be reported within 60 days after filing the main annual income tax return.

If your tax planning is at odds with an ITA position, you must tell them on Form 146, so they know where to start a tax audit. If you don't manage to reach agreement with the ITA regarding such a position, you must decide whether to accept theirs or go to court.

The latest positions supplement earlier positions going back to 2016. Some of them relate to VAT and customs & excise taxes.

What's new?

Below is an overview of the latest crop of reportable tax positions. They are technical but significant.

Israeli parent companies

If an Israeli resident company receives a dividend from a subsidiary and claims a foreign tax credit in Israel for the foreign company's underlying corporation tax and dividend withholding tax, the ITA says any excess foreign tax credit may not be carried forward. Comment: The tax law arguably seems to allow excess dividend withholding tax to be carried forward up to five years.

The ITA also says that if foreign company A paid a lot of corporation tax and foreign company B paid little or no corporation tax, the Israeli parent company cannot pool the two companies' taxes when calculating the foreign tax credit in Israel. Comment: Alternative interpretations may exist.

Controlled foreign companies (CFCs)

When calculating the taxable deemed dividend from a passive controlled foreign company (CFC), usually an offshore company, the ITA says that foreign corporation tax deferred until a dividend is paid does not count in preventing Israeli tax. A CFC pays 15% tax or less. Comment: This targets passive Estonian companies among others. They apparently pay 20% tax, but deferred until any dividend distribution.

The ITA also says no losses may be carried back when calculating CFC profits and deemed dividend, even if a carryback is allowed under foreign law.

Blocker companies

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