Tax alert

In this newsletter, we will be examining the subject of self-purchase from the perspective of international taxation following the recent case law on the subject in Israel. The ruling by the District Court on the Beit Husan case, Tax Appeal 71455-12-18 on November 5, 2020, permits companies to execute self-purchases, where there is a business reason for the transaction, without the need to cope with the tax implications regarding the taxation of notional income or the classification of income from the sale of shares by a foreign resident as a capital gain (which in most cases is exempt from tax in Israel under the force of the internal law or the provisions of the tax treaty) or as a dividend, for which tax must be deducted at source.

The crypto industry forms part of the Hi-tech industrial sector, and in this industry too it is generally acceptable to find crypto based remuneration for someone who is connected to a project, similarly to share based remuneration or employees' stock options. Thus, for example, if a project in the industry includes within its framework the issuance of a cryptographic currency/token, it is very often found that the currencies are granted to the project's employees, to service providers and to entrepreneurs.

There is a proposal, in a draft law that was published on January 13, 2022, for the changing of legislation on a number of issues. We will focus on the denial of significant exemptions for foreign residents regarding residential apartments: tax exemption on rental income, exemption from betterment tax on the sale of a sole apartment, and linear exemption for the betterment of an apartment that is not a sole apartment.

In this newsletter, we would like to discuss the appeal by discussing the appeal by "Sephira Veofek Ltd. ("Sephira Israel" or "The Company") in respect of the tax assessments that had been issued to it for the years 2011 to 2013.

The air-condition in the car belonging to Mr. Naiveman, who is a veteran tax consultant, was indicating 16 degrees when he travelled to visit the assessing officer, and yet sweat was still dripping from his forehead. Going for meetings with Mr. Foxy, who was a mythological and cunning tax official, always made him feel pressurized. And you cannot blame him, Foxy always succeeded in raising an issue that Naiveman has not even thought of.

The Income Tax Ordinance includes a special purpose chapter on the taxation of trusts, which imposes tax and reporting duties on trusts, settlors and beneficiaries, and it includes beneficiaries and income into the Israeli tax net, which would be normally exempt from tax in Israel, were it not for the trust arrangement.