Israel: Tax provisions in proposed budget plan for 2017-2018

Israel: Tax provisions in proposed budget plan

The Israeli budget plan proposed for 2017-2018 introduces significant changes with respect to international taxation, and would be relevant for individuals, multinational corporations operating in Israel, and Israeli corporations operating abroad.

1000

The budget plan (Hebrew) [PDF 1.95 MB] and the related tax measures are pending approval by the Knesset (Israel’s legislature). The following brief description provides a high-level summary of some of the proposed tax changes and expected consequences.

Management, control of a “body of persons” incorporated outside of Israel

An amendment to section 1 of the Israeli Tax Ordinance (ITO) would introduce a rebuttable presumption that the management and control of businesses (i.e., a body of persons) incorporated outside of Israel would be viewed as being located in Israel if:

  • Israeli residents for tax purposes are the controlling persons, the beneficiaries of or are entitled to 50% or more of its income or profits, directly or indirectly.
  • The applicable effective tax rate for all of its profits, if not viewed as Israeli resident, is 15% or less and one of the following applies: (1) the body of persons is a resident of a country with which Israel does not have a double tax treaty; or (2) its country of residence, if not viewed as a resident of Israel, is a country that does not levy tax on income generated outside of the country.

Furthermore, an amendment to section 131 of the ITO has been suggested, with the change creating and imposing a reporting obligation for a body of persons claiming such measures do not apply to it.

Repeal of reporting relief, “new immigrants” and “veteran returning residents”

A proposal under consideration would repeal, as of 1 January 2017, the reporting relief for “new immigrants” and “veteran returning residents”, as defined in section 14(a) of the ITO. Furthermore, it has been suggested to repeal, also as of 1 January 2017, section 14(d) of the ITO that allows the Finance Minister to regulate relief regulations with respect to reporting obligations of “new immigrants” and “veteran returning residents.” 

Registration requirements for multinational corporations

Another measure being considered concerns the reporting obligations with
respect to multinational transactions between related parties, pursuant to
Action 13 of the OECD’s Base Erosion and Profit Shifting (BEPS) plan. Read TaxNewsFlash-Transfer Pricing

Controlled foreign company (CFC) income

Another measure would amend the definition of “passive income” for the
purpose of the provisions of a controlled foreign company (CFC) and would
introduce a rebuttable presumption providing that interest income, linkage
differences, royalties, and rental income would be considered to be
passive income—even if earned as business income.

 

For more information, contact a tax professional with the KPMG member firm in Israel:

Dina Pasca-Raz | +972 3 684-8935 | dpasca@kpmg.com

John Fisher | +972 3 684-8666 | johnfisher@kpmg.com

Asaf Leshem | +972 3 684-8049 | aleshem@kpmg.com

Itay Falb | +972 3 684-8098 | itayfalb@kpmg.com

© 2024 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved.

KPMG refers to the global organization or to one or more of the member firms of KPMG International Limited (“KPMG International”), each of which is a separate legal entity. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. For more detail about our structure please visit https://kpmg.com/governance.

Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.

Connect with us