Welcome to the latest Tax Telegraph covering major Israeli/international tax developments.

In this edition:

  1. Israeli Real Estate Tax Proposals
  2. Worldwide Taxation System and Israel
  3. Israeli Reportable Tax Positions

Please send your comments and questions to: [email protected]

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Israeli Real Estate Tax Proposals

The Israeli Tax Authority (ITA) published on January 13 proposals for amending real estate taxation in Israel. Below is an overview of what the ITA wants to achieve ( The proposals are at an early stage and have yet to be debated and approved by the Israeli cabinet or the Knesset.

The aim is to encourage sales and supply and hence bring down home prices. The public has until 23.59 pm February 3 to comment on the proposals.

Land purchased before November 7, 2021:

It is proposed to temporarily reduce the rate of land appreciation tax (Mas Shevach) on such land from the taxpayer’s marginal rate of up to 47% to 25% of real (inflation adjusted) capital gains. This would be conditional on building homes on the land within 8 years after the purchase if they possess planning permission for this. Comment: This proposed amendment is long overdue. The 25% tax rate already applies to individuals on the pro rata portion of gain arising after November 7, 2011. The 47% tax rate was a deterrent to selling real estate acquired before that date and probably deterred people from selling (especially if betterment levy also applies to gains from re-zoning land from agricultural to developable).

 Adjusted purchase tax rates:

It is proposed to adjust the limits for purchase tax in order to reduce the tax on homes of medium value and raise the tax on pricier homes. For example, it is proposed there be no purchase tax on certain types of new only homes under construction worth up to NIS 1,930,000 instead of NIS 1,805,545 currently in 2022.

Closing loopholes:

In 2014 the law was amended to allow owners of more than one home to retain an exemption for the pre-2014 portion of any sale gain. But it seems this exemption also applies to land, which wasn’t intended, so it is proposed to close this loophole over a 4 year transition period.

Second, it seems the 3% surtax shouldn’t apply at present to high income taxpayers with income over NIS 663,240 per year (in 2022) on homes sold for up to NIS 4.75m approximately. It is proposed to impose the 3% surtax on capital gains/land appreciation in such cases. Comment: In practice, ITA’s real estate taxation branch operates separately from the income tax branch, so do their respective computer systems. The 3% surtax is one of the regular chestnuts resulting in surprise 3% tax assessments from the income tax branch. So at least the situation may be clarified soon.

Third, purchase tax is not always collected at present on the construction price when construction services are supplied separately from the land. It is proposed to collect tax on the finished home price.

Fourth, reduced purchase rates may apply to owners of more than one home if that situation lasts for up to two years. It is proposed to reduce the two-home temporary period to one year.

Foreign residents:

Foreign residents reportedly own about 83,000 Israel homes, of which around 40,000 are in Jerusalem or Tel-Aviv.

If they rent out these homes, it is proposed to abolish for foreign residents for rental income of up to NIS 5,196 per month (in 2022) and the partial exemption above this amount, commencing in 2024. Other real estate tax reliefs may also be denied for foreign residents.


The proposals to tighten up taxation of foreign residents seems regrettable. They enlarge the Israeli property market. And importantly, many foreign investors go on to become Olim and reside in what was initially their vacation home in the promised land.

Rental projects:

More measures are contained in the recent budget package which offer tax incentives for long term residential rental projects.

The budget amendment adds “institutional rental buildings” approved up to the end of 2031. Approval must be requested with a copy building permit before the end of construction. There should be at least 10 homes generally, or 6 homes if the building is in a prescribed peripheral area. The Investment Center board must be satisfied that the homes are to be rented out on average 15 years out of 18 years after the end of construction.

Rental and sales gains of companies in qualifying cases may be taxed at 5% -11%. Dividends are taxable at 20% subject to any applicable tax treaty.

Rental profit and sales gains of individuals in qualifying cases may be initially taxed at 29%, potentially decreasing to 27.5% after 5 years rental, 25.5% after 10 years rental, 24% after 15 years rental.

Next step:

Please consult us and experienced tax advisors in each country at an early stage in specific cases.

[email protected]m

The writer is a certified public accountant and tax specialist at Harris Horoviz

© 26.1.22

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 Worldwide Taxation System and Israel

 The OECD published on December 20, 2021, “model rules” for imposing a minimum tax rate of 15% on corporations around the world, as part of its so-called “Pillar 2” tax package. This concerns you if you are a multinational or an investor in multinationals, most of us are.

The “model rules” are the detailed nuts and bolts for implementing the 15% minimum tax rate in 137 countries. This means there will soon be OECD taxation rules on OECD computer systems on top of regional and national tax systems. Israel is part of this.

 Brave new world?

The OECD wants the Pillar 2 proposals to be finalized and implemented in 2023-2024.

The OECD would apparently oversee the operation of these rules via a special OECD platform for national tax authorities to log onto.

The OECD estimates the additional future tax revenues at around USD 150 billion per year.


Who looks set to pay these additional tax revenues? It seems the top 100 or so multinational groups, including many of the well-known tech giants. But perhaps not all of them, there are some exceptions (“carve-outs”) in the rules.

It remains to be seen whether the OECD or individual countries would extend the rules to smaller multinationals.

Pillar 1:

The OECD also has a Pillar 1 package, which proposes to re-allocate profits from where the profits are generated (e.g. offshore servers) to the onshore countries where customers reside. Part of the Pillar 1 proposals are being re-written at the insistence of lesser developed countries who want a bigger slice of the new tax revenues. So Pillar 2 may precede Pillar 1.

Pillar 2 – More on the Model Rules:

Pillar 2 calls for a minimum corporate income tax rate of 15% on GloBE (Global anti-Base Erosion) income, as defined in detail.

The rules cover multinational enterprise (MNE) groups with annual revenues of EUR 750 million or more in two out of the four preceding fiscal years.

Excluded entities include: governmental bodies, non-profits, pension funds, a regulated investment fund that is a UPE, a real estate investment vehicle that is a UPE (has predominantly real estate and is subject to single level tax

The Pillar 2 model rules are written in dense jargon with little explanation, but the OECD promises a commentary and more documentation later in 2022. Following is a preliminary brief overview as of now.

The Ultimate Parent Entity (UPE) will pay a Top-Up Tax to under an income inclusion rule to reach the minimum 15% tax rate.

Failing that an intermediate parent entity will pay the Top-Up Tax.

And failing that, constituent entities of the group will be denied expense deductions under an

Under-Taxed Payment Rule (UTPR) up to the amount of the top-up tax. Each country will be allocated a share pro rata to employees (50%) and tangible fixed assets (50%).

MNE groups will file a standardized OECD information return in each country that has introduced the GloBE rules.

Many other detailed aspects are addressed.


Israel is an OECD member and the government has invited public comments on Pillar 1 & 2. They may affect, among others, foreign groups with a privileged enterprise in Israel’s Development Area A. These currently pay 7.5% company tax on profits and 20% on dividends. If they don’t distribute dividends, they may find themselves paying another 7.5% top-up tax in the country of residence of the ultimate parent entity. Many other issues may also arise e.g. questions about preserving the confidentiality of the affairs of Israeli taxpayers from tax officials in another 136 countries (not to mention hackers). Keeping it all in Hebrew may not be possible on the OECD system.


Imagine going to a Residents’ Association of an apartment building with 137 noisy participants. Will it be orderly? Will a lone country like Israel have any real say? The administration chapter of the model rules contains insufficient details.

What will happen to the stock market price of MNEs facing a higher global tax bill? How will disputes be resolved?

The 15% tax is a really an alternative minimum tax. But if a negative tax result emerges, the OECD slipped in a second alternative minimum tax (para. 4.1.5)!

Israeli and other corporate groups with revenues below EUR 750m are not off the hook. They still have to cope with the new OECD multilateral instrument (a complex super tax treaty) and indirect taxes (VAT or sales tax) especially on B2C (business to commerce) sales in many countries.  They will need to review the rules and optimize their business model accordingly…..

Next step:

Please consult us and experienced tax advisors in each country at an early stage in specific cases.

[email protected]m

© 26.1.22


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 Israeli Reportable Tax Positions

The Israeli Tax Authority (ITA) has published more reportable tax positions, which are similar to reportable tax shelters in the US and UK. But the ITA also uses them to impose its interpretation of the tax law in non-tax shelter cases. The ITA claims this is okay because the Knesset allowed them to issue 400 such positions, and “only” 101 positions currently exist.

The latest batch relates to the 2021 tax year onwards and take aim at international cases and trusts.

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 4 years.

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 decide whether to accept theirs or go to court.

Below we overview some 2021 positions.

Virtual currencies

The ITA says that a virtual currency (e.g. bitcoins) is a taxable asset but not a currency or foreign currency. Therefore, an exemption in Israeli law for certain forex differences does not apply.

ESOP Recharges:

If an Israeli employee receives options/shares of a foreign parent company, it is customary for the parent company to recharge a paper cost to the Israeli subsidiary. The ITA says this should only be done upon vesting at fair value pursuant to an agreement and included in the Israeli subsidiaries cost base if “cost plus” is applied. Otherwise, any payment by the subsidiary to the parent may be subject to withholding tax as a dividend.

Foreign tax credits:

No foreign tax credit will be allowed for foreign sales tax, Goods & Service Tax (= VAT in some countries), equalization tax (e.g. in India) or health tax (e.g. Obamacare). Also, none for corporate income tax booked under the equity method of accounting from a different company.

Controlled Foreign Company (CFC):

Deemed dividends from passive CFCs may be taxed under Israeli tax rules if the CFC is not a taxpayer in its country of residence (e.g. US LLC?) or pays over 15% tax but is part of a chain of companies paying under 15%.

Israeli Resident Beneficiary Trust:

Such a trust has a foreign resident settlor and at least one Israeli resident beneficiary. In general, it

may not claim a cost step-up (revaluation) of an asset contributed to it unless: (1) the trust voluntarily paid 4%-10% tax on its assets under a (now expired) “transitional” amnesty program of March 9, 2014, or (b) if the settlor and beneficiary are relatives (as defined, a “relatives’ trust”), the trust was formed before 2003 and the contribution to the trust was reported on Tax Form 147 by the end 2015. The latter is said to be based on Section 75G1(f) of the Tax Ordinance and paragraph of Tax Circular 3/2016, but the 2003/2015 time limits seem to be new…..

Trust Carve-Ups:

A trust with an Israeli resident settlor or beneficiary will often be a fully taxable Israeli residents’ trust even if some of the beneficiaries are resident in another country – which might also tax trust income. So, it may seem tempting to carve up trust assets or trust income between Israeli residents and foreign residents to help avoid double taxation. But the ITA reportable position says a carve-up is a capital gains tax event, and if unreported, the entire trust remains taxable in Israel even if some beneficiaries are in their 10 year tax holiday for foreign income. Comment:


The Tax Ordinance requires reportable positions to be written in clear and understandable language and published after giving the CPA Institute and Law Society a reasonable opportunity to comment. In practice, most positions are written in long-winded sentences, and then circulated and published in a hurry at year-end. This time, the professional bodies complained bitterly and the ITA reportedly promised to mend its ways in future by pruning the number of reportable positions, simplifying them, circulating a draft version by June 30 and publishing the final version by September 30. Comment: we hope so.

Next step:

Please consult us and experienced tax advisors in each country at an early stage in specific cases.

[email protected]m

© 26.1.22

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