Google, Facebook could face huge Israel tax bill

Eran Yaakov Photo: Rafi Kutz

The Israel Tax Authority's new plan is to tax 3%-5% of the revenue of the Internet tech giants.

The Israel Tax Authority will present a new plan to the incoming minister of finance: taxing the revenue of Internet tech giants operating in Israel, including Google and Facebook.

Who the next minister of finance will be is unclear, but the ambitious taxation plan already being formed follows the global trend towards imposing tax on the revenue of the global Internet tech giants like Google and Facebook. A legislative change has been under consideration for some time, and the Israel Tax Authority decided that once a new minister of finance takes office, the matter would be raised and a plan formulated. The plan is to tax 3-5% of these companies' turnover.

The Israel Tax Authority is considering basing any Israeli law on the law passed on the matter in France, due to take effect next month.

The issue has been on the agenda in recent years as part of the global trend towards taxing Internet companies that do not pay tax on their activity in many countries because they do not have offices or physical business activity in those countries' territory.

The European Union (EU) prepared in 2018 to impose a 3% tax on the turnover of international Internet companies with a sales turnover of over €750 million and over €50 million sales in the EU. Had this legislation passed, it would have affected mainly Google, Amazon, Facebook, and Apple.

The proposed tax means that Internet companies, most of which are US-based, will begin paying tax in Europe for the first time according to the volume of their services consumed. The legislation did not pass, however, because not all the EU countries agreed to it.

Meanwhile, some countries are not waiting, and are going ahead with their own legislation in the matter. France recently formulated legislation imposing a 2-5% tax on the sales turnover of the multinational Internet companies. In this plan, the idea was raised of making the tax indirect, thereby reducing the options for tax planning and deduction.

Israel is now also considering legislation along the lines of the proposed French law, after the Internet companies proved uncooperative in their discussions with the Tax Authority.

In recent years, these companies have been in discussions with the Tax Authority, which is demanding that they pay tax on their activity in Israel, based on the new interpretation published in April 2017. In its professional circular published at that time, the Tax Authority declared a "revolution" in taxation of international companies operating in Israel through the Internet. It was decided officially and finally that if certain conditions are fulfilled, the foreign Internet companies conducting substantial business activity in Israel and providing services to customers in Israel, including advertising, file downloading, Internet promotion of customers, etc., would be obligated to pay tax in Israel.

Although the Tax Authority ostensibly did not change the existing legislation at the time, the circular in practice imposed a 25% tax on the income of the foreign companies fulfilling the conditions listed in the circular. For the large companies, such as Google, tax assessments were begun, and a war of brain and force began, with the companies trying to conceal their income, or at least reduce the tax demanded from them.

These discussions are continuing, while the Tax Authority is trying to "simplify" the collection of taxes from these companies and prevent tax planning and evasion of payment by the multinational Internet companies.

It is believed that if the legislation passes, the companies in question will have to pay hundreds of millions of shekels in tax. In an optimistic scenario, which some in the Tax Authority regard as unrealistic, tax revenue from this source could reach NIS 1 billion.

Published by Globes, Israel business news - en.globes.co.il - on April 28, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Eran Yaakov Photo: Rafi Kutz
Eran Yaakov Photo: Rafi Kutz
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