Israel, 1
REGIONAL FOCUS EUROPE
39
VERSION
KEY POINTS What is the issue? REPRO OP
There is a fundamental difference between international and local tax counselling in Israel.1 What does it mean for me?
SUBS ART
Advisors need to cooperate with tax advisors from other countries. A failure to do so might lead to poor planning, which will expose the client to high tax rates. What can I take away?
Practice makes perfect
CLIENT
SHAI DOVER STRESSES THE NEED FOR COOPERATION BETWEEN ADVISORS WHEN CALCULATING CROSS-BORDER TAXATION, USING GERMAN AND ISRAELI TAX LAW AS AN EXAMPLE
Shai Dover TEP is founder of SD Accounting Firm Trust & Tax Consultants
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PRODUCTION
The necessary considerations when planning in the international arena, and an understanding of the importance of creating a professional network of tax advisors from different jurisdictions.
THE DIFFERENCE BETWEEN LOCAL AND INTERNATIONAL TAX COUNSELLING Tax advice given to a client in a certain country, while the client is a resident of another country, or where the relevant income is taxable in another country, must take into account the tax implications in both countries (i.e. the client’s country of residence and the taxing country). Incorrect advice is sometimes a result of overlooking the implications of a double taxation treaty (DTT) or local tax laws in another country. In many cases, only cooperation between tax consultants from both countries can prevent dramatic tax mistakes. The question of whether a tax expert can claim responsibility only for their client’s taxes in the expert’s country is one that should remain theoretical. Mistakes can be made in almost any field of taxation. Below are a few examples in which tax planning in one country did not take into account the tax laws in the other: • Interest income: Although the client was exempt from taxes in the US on interest income from municipal bonds, said exemption was not valid in Israel and the income was subject
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to taxes, a fact that completely altered the revenue calculations. Real estate sale: On the sale by an Israeli resident, who was also a US citizen, of a residential apartment in Israel, certain tax exemptions may have been relevant, but said exemptions were not valid in the US and the sale was subject to capital gains taxes (CGTs). Trust taxation: A trust not subject to taxes in South Africa was subject to tax in Israel, since trusts with Israeli-resident beneficiaries were liable to tax in Israel, in accordance with the provision of the Income Tax Ordinance (New Version), 5721–1961, even if all other beneficiaries were foreign residents. Permanent establishment: A company incorporated in Germany created a permanent establishment (PE) in Israel, since it failed to understand how the Israeli tax authority interpreted the legal requirement for PE in Israel. This case needed better practical knowledge of the Israeli tax authority’s position, rather than the DTT. Questionable residency: A South African citizen assumed in his planning that he was considered a resident of Israel; however, the Israeli authorities did not consider him as such and refused to grant him a certificate of fiscal residence.
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