The aim is close a tax loophole exploited by companies, especially high-tech companies, to claim they do not owe Israeli taxes.
The Income Tax Authority is intensifying its effort to tax the overseas income of Israelis. The Income Tax Authority published "control and management" regulations, the two factors defining a tax-paying company's residence.
Many Israeli companies, especially in the high-tech sector, conduct business through companies registered overseas, in the US or various tax shelters. Income tax regulations stipulate that a tax-paying company, the control and management of which is in Israel, is subject to tax in Israel.
Therefore, the use of shell companies does not exempt tax-paying companies from Israeli taxes, which are usually higher than overseas. The Income Tax Authority demands proof that the share-owning companies are active overseas, and not are solely used to hold shares on behalf of Israeli owners.
A booklet recently issued by the Income Tax Authority states that in order to determine if a business or company is controlled and managed from Israel, it is necessary to determine where strategic decisions are made. The Income Tax Authority emphasizes that this means the company's headquarters. Overseas trips by the board of directors to conduct specific meetings do not convert the overseas location into the company's residence.
Published by Israel's Business Arena on 6 March 2002