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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.
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
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