Memorandum of Law
- Suggested name
The law to amend the tax ordinance nr. ( ) amendments for the enhancement of transparency in tax law and for the withstanding in international compliance in matters of exchange of information 2024. - The purpose of the proposed law, its necessity, main provisions and its effect on the current
regulation.
The purpose of this memo is to implement the international standard which was asserted by the
international forum for transparency and information exchange for tax purposes (Hereinafter: “the
Global Forum”), and the enhancement of the temperance in the tax system, using reporting duties
to the tax authority as described below:
The global forum if a body working under the OECD and is responsible, among other, over the review
of implementation of the information exchange between the members state in the OECD and those
states which are members in it, (since 2000 the organization has been implementing International
standards regarding tax transparency – standard for exchange of information request based) EOIR
(as well as automatic exchange of information) AEOI and it promises the implementation using
supervision and peer review conducted regularly.
The global forum conducts peer review regarding the exchange of information in Israel since 2019,
when in March 2023 a delegation came for a physical audit regarding the on-demand exchange of
information.
As part of the audit process, it has been found that the Israel tax regulation\legislation has several
deficiencies in that aspect causing the Israeli regulation not be in line with the international
demands of the international standards of the global forum, and whereas specific and relevant
articles are amended, there is a high probability that the state of Israel shall be found as deficient in
the report conducted these days.
Following the deficiencies found in the Israeli legislation on the global forum report ” Global Forum on Transparency and Exchange of Information for Tax Purposes: Israel 2022 (Second Round, Phase .” the recommendations draft of the expected audit is due to be published by the end of March 2024, based on the effective legislation in Israel at the time.
Should the state of Israel fail to pass the peer review audit conducted by the global forum it will be defined as state which is not implementing the organization recommendations fully (Partially compliant).
The main deficiencies which have been found are about the state authorities’ accessibility to information belonging to the “Ultimate beneficiary” in entities and legal arrangements active in Israel, lack of information about certain trusts working in Israel and lack of Information about new immigrants and returning veteran residents (Hereinafter: “the deficiencies).
Should these deficiencies not amended and Israel will not pass the audit it faces an entry to the EU’s compliance “Black List” of countries. Nowadays the list has a limited number of countries which are considered “tax shelters”.
Thess listed countries are imposed with financial sanctions by the EU including the demand for deduction at source of a high rate over funds transfer from EU states in such cases as Dividends and investments.
Due to that, there is a high importunacy to amend the deficiencies found as soon as possible and therefore this memo has several amendments which should amend these deficiencies.
As mentioned, these amendments’ goal is to enhance the tax transparency in Israel in order to combat undeclared capital, as well as to prevent a negative review of Israel by the global forum organization and the entry of Israel to the EUs black list.
It should be clarified that these suggestions will not change the tax liability or cancel exemptions of any kind which will continue to be given according to the existing law, theses amendments are
only about transparency enhancement. - The effect the suggested memo has over the budget and administrative standard of the initiating office, other offices and other authorities.
Non - The suggested wording of the memo and its explanatory
Finance ministry memorandum of law:
Memorandum of law for the amendment of the tax ordinance nr. () amendments for the enhancement of tax law transparency and to withstand the international requirements in the matter of information exchange 2024.
Amending article 14
- In article 14 (b) 2 (to the tax ordinance) new version 1961 (hereinafter: “the ordinance”)
> instead of sub paragraph e’ shall come:
The said period in paragraph 2 to the definition of “foreign occupation company”) in article 75 b’ (1) a and the said period in paragraph 4 (in article 75 (b) 1 (d)
> Paragraph (g) and paragraph (h) shall be deleted
Amending article 75 (q) 1
- In article (q) 1 to the ordinance
> Article (a1) shall be erased.
> Article (c) paragraph (2) shall be erased.
Amending article 75 (q) 2
- In article 75 (q) 2 to the ordinance
> In paragraph (a)(2), the final clause starting with the words “the provisions of this paragraph shall not apply” – shall be erased;
> After paragraph (b) will come:
“(c) (1) an Israeli resident trustee in a trust which is not obliged in filing a report according to article 131(a)(5b) shall file a notification to the manager, in a form which was defined, in 90 days from the day the trust has been settled or from the day of granting, accordingly, about the settlement of the trust, which will provide the details of of the controlling persons\s in the trust and the residency of each of them. In this paragraph, “controlling person” as defined in paragraph 3 to the definition of controlling person in article 135b;
2 such notification has been submitted as abovementioned in paragraph (1) and the controlling persons of the trust have changed, the trustee shall submit to the manager a notification in a form up to the 30th day of April of the following tax year when the controlling persons have changed and will detail the details of the controlling persons after the change and their residency.
Amending article 131 4. In article 131 to the ordinance
- In paragraph 3(1)
> In paragraph (1) after the final clause of paragraph (a) shall come “and if any of these is not an individual – the details of the individual which is a controlling person in it.”;
> In paragraph (2), after the final clause of paragraph (a) shall come “and if any of these is not an individual – the details of the individual which is a controlling person in it.”;
> In Paragraph (3) after “in this small article” shall come –
“”controlling person – as defined in paragraphs (1) or (2) to the definition of “controlling person” in article 135b;”; - After article (c2) shall come –
“(c3) a report as said in article (a)(5) shall elaborate the details of all those which were controlling persons in the member of human during the tax year and the residency of each of them; for this matter, “controlling person” – as defined in article 135b;”
Amending article 134b 5. Article 134b to the ordinance – canceled
Amending article 135 6. In article 135(1) to the ordinance, paragraph b – erased
Adding article 135a1 7. After article 135a to the ordinance shall come:
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“The duty of submitting a report by Member of Humen of which its business control and its management are active in the hands of a return veteran resident or an Israeli resident for the first time |
135a1 (a) without derogating this chapter, the assessing officer may demand in a written notice to the Member of Humen that according to article (b)(2) in the definition of “Israeli resident” or “Resident” he is not viewed as an Israeli resident due to the fact that the control of his businesses and the management is operated in Israel by an individual which became an Israeli resident for the first time or became a returning veteran resident , or by his proxy (in this article Member of Humen), to submit to him every, information or report which will be pointed in the notice including a report according to article 131 or as mentioned in article 135 (hereinafter: ”report”); every report according to this paragraph shall be submitted to the assessing officer on the date specified in the notice, as long that as per the report according to article 131 as long as in regards to the report according to article 131 no date shall be determined prior to the end of the 90 days from the day of the demand. (b) Should the Member of Humen not submit the report as said in that paragraph in the time specified in the notice, the assessing officer can demand the report from the individual who became an Israeli resident for the first time or from the Israeli Veteran resident as they are defined in article 14(a), that the control over his businesses and their management are operated in Israel by him or by his proxy. (c) for the purpose of the report filing according to this article the Member of human must maintain an accounting record according to acceptable accounting principals in Israel and to keep it accordingly. |
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Beginning, application and Transition orders |
8. |
(a) this law shall apply to whoever became a resident of Israel for the first time or became a returning veteran resident as said in article 14(a), starting from 1.6.2025 onwards. (b) article 131 to the ordinance , as worded in the law, shall apply over a report which needs to be submitted for the 2024 tax year onwards. (c) a trustee in a trust which was settled prior to the publication of this law, shall file a notification as said in article 75 (q)2 to the ordinance as mentioned in article 1 to this law within 90 days of its publication. |
