Today, by a majority of eight to five, the Knesset Finance Committee approved amendments to the taxation clauses in the regulations dealing with expenses of the prime minister, in response to a request from the Prime Minister's Office, and after a discussion that seemed divorced from the reality of the difficult financial situation in the country, or in the words of MK Bezalel Smotrich "We're out of touch." Smotrich abstained from supporting the request after his call for it to be deferred was rejected.
Netanyahu asked that income tax on gifts, benefits and refunds of expenses that he received should be grossed up, that is, should be borne by the state, retroactively from January 2009.
The Knesset Finance Committee also discussed Prime Minister Benjamin Netanyahu's request for approval for the living expenses to be paid to alternate prime minister Benny Gantz, including residence, security, and other expenses. Gantz has already notified Finance Committee chairman Moshe Gafni that he is waiving any right to such expense payments while he is alternate prime minister under the rotation agreement with Netanyahu. The agreement is that for eighteen months Netanyahu will be prime minister with Gantz styled alternate prime minister, with the roles then to be reversed for the next eighteen months.
In 2018, it was legislated that the prime minster's use of his official vehicle would not be taxed, and that the state would bear the costs of his private residence besides the official residence in Jerusalem. The Tax Authority however issued a tax demand relating to benefits received by Netanyahu between 2013 and 2017, and it is this demand that the prime minister seeks to avoid paying.
Over the past two days talks took place between the coalition parties and within them in the light of the considerable public criticism levelled at the request. The Blue & White party agreed to support a nine-year retroactive tax exemption for Netanyahu amounting to NIS 600,000, but requested that the clauses dealing with benefits for the prime minister and alternate prime minister should not be voted on.
On Sunday afternoon, acting director general of the Prime Minister's Office Ronen Peretz presented a document for discussion by the Knesset Finance Committee. The document bore the title "Decision on Remuneration of Ministers and Deputy Ministers (Amendment of Temporary Order)". It contained many sections on living costs and refunds of expenses paid by the state.
The aim of this detailed document was to provide Prime Minister Benjamin Netanyahu with a residence financed by the state during the period when, according to the rotation arrangement in the coalition agreement with Benny Gantz's Blue & White party, he will be alternate prime minister, from November 2021 until May 2023, when Gantz will be prime minister. Close examination of the document reveals, however, that Netanyahu is not only asking for an official residence in the future; he also seeks to receive tax rebates from the state going back to 2009 for benefits for which he had to pay at his private residence in Caesarea.
One of the clauses in the coalition agreement between Netanyahu and Gantz states that "additional instructions will be drawn up concerning security for the alternate prime minister and matters deriving from this, such as living arrangements, an office, and everything directly and indirectly connected with them, and the alternate prime minister will be entitled to all associated conditions."
Now, a month after the government was sworn in and when the Israeli economy is under severe stress, with tens of thousands of businesses closed and some 750,000 people looking for work, Netanyahu saw fit to ask the Finance Committee to approve far-reaching benefits for himself and his wife that could cost hundreds of thousands of shekels, if not more, to the public purse (the exact numbers are not known at this stage).
We enquired of the Prime Minister's Office who initiated the drafting of the document, and who is pushing the matter, but other than the fact that Ronen Peretz is the signatory on the document, no answers were forthcoming.
Retroactive tax exemption, without time limit
First of all it should be said that according to the wording of the coalition agreement, the benefits are supposed to apply to Netanyahu and Gantz equally, each in turn. But Gantz's office has said ever since the coalition agreement was signed that he has no desire or need for an alternate prime minister's residence or for living expenses for his family. Gantz wrote to Finance Committee chairman Moshe Gafni stating, "I forego the provision of a residence by the state and notify you that my private home will serve as the alternate residence, and there is therefore no need for the state to provide me with any additional residence. I also waive all the expenses set out in relation to the residence, including for staff, the building and its maintenance, and hospitality. There is also no need for storage and haulage expenses, and I waive payment of living expenses for my partner and members of my family living with me."
Gantz's letter makes it quite clear that the document laid before the Finance Committee is intended to deal with Netanyahu alone by way of personal legislation designed to regularize state finance for him.
The document also states that Netanyahu can nominate any one of his three properties, two in Jerusalem (of one of which he is co-owner with US-based businessman Spencer Partridge) and one in Caesarea, as his official alternate prime minister's residence to be financed by the state.
The document is very generous when it comes to the types of expenditure that the state will cover. They include all hospitality, including political hospitality, meaning not just hosting foreign leaders who come to Israel but also hosting members of the Likud central committee. Staff, routine maintenance, including preventative maintenance, furniture, repairs, adaptation of the home, are all there, plus a special clause that will allow extensive renovation of the house in Caesarea. In addition, during his period as alternate prime minister, Netanyahu will receive living expenses for himself and those living with him.
Prime Minister's Office legal counsel Adv. Shlomit Barnea-Farago has for years refused to approve repairs and alterations at the Netanyahus' home in Caesarea at the expense of the state, and required any such expenses that were paid to be subject to income tax, as in the case of any worker who receives a benefit from the state for personal use.
One of the clauses in the document that is especially disturbing is the tax rebate in respect of refunds of expenses received by Netanyahu from January 1, 2009. Sections 9e of the document states: "Income tax imposed on the prime minister stemming from the upgrade of a vehicle will be at the expense of the Ministry of Finance." This section was agreed and became widely accepted. Two years ago (in January 2018) the Finance Committee approved a tax rebate for Netanyahu in respect of taxation of use of his official car arising from security concerns. Netanyahu now seeks to obtain everything he paid under this section from 2009. For ordinary citizens, tax rebates can be claimed retroactively for a maximum of six years. Netanyahu is asking for special legislation allowing him to claim rebates going back eleven and a half years.
In section 9f, the Prime Minister's Office inserted the following demand: "Income tax imposed on Netanyahu from January 1, 2009 until December 31, 2017 in respect of income deriving from payments, services and benefits in kind, apart from salary and welfare payments, will be at the expense of the state."
What does this mean? Any sum representing private expenditure by Netanyahu on his Caesarea home, including maintenance, renovations, adaptations, and in fact any payment refunded to him and any benefit in kind on which income tax is payable will be at the expense of the Israeli taxpayer.
Adv. Yaniv Shekel of the law firm Shekel & Co. told "Globes" that in a way the decision was reasonable. "It recognizes the fact that all benefits are liable to tax, including the upgraded car. At the same time, the decision goes on to determine arrangements in connection with the conditions of the job of prime minister, which are liable to be a matter of public controversy. Under the decision, the state will gross up benefits, meaning an increase in the prime minister's salary in such a way as will finance all the tax on benefits. I am not familiar with the prime minister's tax assessments, but under tax law it can be assumed that they include various benefits that are not required for the purposes of his job, such as expenses in connection with his private home or his family."
Adv. Leor Neuman, a tax partner at S. Horowitz & Co., told "Globes" that section 2(2) of the Tax Ordinance stipulates that an employee's income includes all benefits in the form of money or money equivalent given to him by his employer, including the value of a vehicle and payments to cover expenses.
"The test applied by the courts is whether the expense is for the befit of the employee or for the convenience of the employer. If an expense is mainly for the convenience of the employer, then even if there is also a benefit to the employee, it could not be counted as income, and vice versa."
Neuman points out, however, that in Netanyahu's case there is a difference between the car and private living expenses. "If the value of the car is higher as a result of extra bullet-proofing requirements by the state, there are no grounds for attributing additional income to the prime minister for this, which is a matter of the convenience and need of the employer, and there is no personal benefit accruing to the prime minster. This is in contrast to crediting the value for tax purposes of living in the prime minister's residence, which is presumably a mixed expense."
In addition, Neuman says, there is the problem of prescription. "There is a limit of six years for reclaiming excess tax paid to the Tax Authority, which means that Netanyahu cannot go back to 2009, but only to 2014."
Netanyahu's demands have raised a political storm. In advance of the Finance Committee session, MK Oded Forer demanded that before the committee discussed them, the members of the committee should receive the following details: the haulage budget; the budget for living expenses for family members; staff salary costs; and the cost of the retroactive rebate.
Netanyahu responded to the criticism of his tax request by saying that he was not asking for special conditions, and that the tax assessment was an attempt to make him pay taxes that had never been demanded of any previous prime minister. Former prime ministers Ehud Olmert and Ehud Barak have both said that they never claimed any expenses relating to their private residences, and hence were never assessed for income tax on such expense claims.
Published by Globes, Israel business news - en.globes.co.il - on June 23, 2020
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