Insights & News /  Tax

Airbnb has become a major player in the tourism market in recent years, with its user base growing by 40% over the past year. Thousands of Israelis rent out their apartments through the platform, earning the equivalent of a monthly salary. Until now, the Israel Tax Authority has not actively pursued enforcement of tax obligations on this income. Adv. Harel Perlmutter spoke to Ynet about new tax rules that could change this approach.

What can taxpayers do to take advantage of available tax breaks and allowances? Tax experts, including Adv. Harel Perlmutter, discuss these issues in an interview with Ynet.

Israel has signed the Organisation for Economic Co-operation and Development’s Multilateral Competent Authority Agreement (MCAA), which facilitates the automatic exchange of financial information. Israel’s participation brings the number of signatories to 91 and strengthens global efforts to combat tax evasion. Adv. Harel Perlmutter was interviewed by Bloomberg BNA about the agreement.

The Israel Tax Authority is negotiating a treaty with Australia to prevent double taxation. Adv. Harel Perlmutter, who specializes in international taxation, describes this development as “wonderful news,” noting that Israel and Australia enjoy excellent economic and political relations and that Israeli investment in Australia has tripled over the past three years. He explains that, until now, there have been no significant talks on a tax treaty between the two countries. The absence of a treaty can lead to double taxation, uncertainty and withholding tax complications in cross-border trade and business, particularly for Israeli companies seeking to operate and invest in Australia and Australian companies seeking to do the same in Israel.

About a month ago, the Israeli High Court of Justice considered a petition seeking to compel the Minister of Finance and the Director of the Israel Tax Authority to impose value-added tax (VAT) on multinational companies such as Google and Facebook. The petitioner argued that these companies provide services and sell goods in Israel over the internet without being required to pay VAT, giving them an unfair advantage over Israeli competitors. The petitioner maintained that these multinational companies conduct extensive business activities in Israel, including marketing and communicating with Israeli customers in Hebrew and accepting payments in Israeli currency. The petitioner also challenged the Israel Tax Authority’s use of server location as a criterion for determining whether an online transaction takes place in Israel. The court dismissed the petition as premature because the VAT authorities were preparing a circular on the subject, which was expected to be published shortly. The dismissal did not resolve the question of VAT liability, which is likely to be addressed in future legal proceedings. Tax liability, however, is only one of the legal issues arising from online activity. Others include defamation, consumer protection, gambling, foreign exchange trading, pharmaceuticals, privacy, and copyright. Each raises a fundamental question: which jurisdiction’s laws govern the activity and determine whether it is lawful? These challenges are not unique to Israel. Various countries have made significant progress in addressing them, including through judicial rulings.

Israeli Finance Minister Yair Lapid and his German counterpart, Wolfgang Schäuble, signed a revised tax treaty in Berlin on August 21, 2014. Last amended in 1977, the treaty has been updated to reflect modern international tax law and current economic relations between Israel and Germany.

Since its enactment in 1959, the Law for the Encouragement of Capital Investment is one of the most significant means of growth and development for the Israeli economy and its industry.

Tax treaties aim to promote international trade by eliminating double taxation. Although the Israel Tax Authority and Israel’s Ministry of Finance have been reluctant to acknowledge a potential new tax treaty with Switzerland, the Swiss Finance Ministry has been more forthcoming. Swiss officials have confirmed that negotiations on the proposed treaty took place with the Israeli tax authorities in recent weeks.

Amendments to Israel’s VAT legislation are expected to reduce the cost of clinical trials involving human participants, benefiting international companies that conduct trials in Israel. In an interview with Globes, Adv. Harel Perlmutter, who specializes in international taxation at Barnea, explained: "The amendments will have two main implications. First, an Israeli company acquiring medication from an overseas company will not have to pay VAT or customs duty in Israel, costs it would usually pass on to the overseas company. Second, the fees the Israeli company charges the overseas company for conducting the trials will be subject to VAT at a rate of zero percent."

Barnea was recognized as a leading tax firm in Israel by World Tax, International Tax Review’s directory of leading tax advisory firms worldwide.

Barnea Co., together with the Israel-Netherlands Chamber of Commerce and the Netherlands Foreign Investment Agency, is organizing a breakfast workshop titled “2014 Tax Changes Affecting Israeli Companies Investing in or Through the Netherlands.” The workshop will take place on the morning of December 25, 2013, at Barnea Co.’s offices, 6 HaChoshlim Street, 4th floor, Herzliya. Attendance is by invitation only.

On December 23, Israel’s Knesset approved Amendment 198 to section 75B of the Income Tax Ordinance, 1961 (ITO), strengthening the taxation of controlled foreign corporations (CFCs). The amendment took effect on January 1. Since 2006, Israel has taxed qualifying Israeli-resident shareholders, both corporate and individual, on the undistributed profits of foreign companies that qualify as CFCs. Under this regime, an Israeli-resident shareholder who individually holds at least 10 percent of a foreign company’s means of control and, together with other Israeli-resident shareholders, holds at least 50 percent must report their proportionate share of the company’s undistributed profits as a deemed dividend, provided that most of the company’s income in the relevant tax year is considered passive under Israeli law. The regime also applies to foreign companies in which close relatives hold at least 40 percent of the means of control.