In early August 2016, a draft of government decision for making legislative changes concerning the state budget for 2017-2018 was published (“the decision”) followed by a bill published recently. The decision mentions a number of proposed changes in the taxation field. Although this is not a final legislative act and it is not clear which parts of the decision will pass in the final legislation and in which form, one may benefit from understanding the expected trends and take appropriate steps. We focus below on proposed changes related to international taxation:

1. It was proposed to cancel the existing exemption from reporting for new immigrants and long term returning residents, from 2017 onward. It should be emphasized that this amendment was proposed a number of times previously and was not passed due to strong objections from the Ministry of Aliyah and Immigrant Absorption. The decision and its explanations did not state that the new law, if passed, would not apply to new immigrants and returning residents, who have already lived in Israel.

   In spite of the aforesaid, it was finally decided to drop this proposed change of legislation and it was not included in the later bill publication, however this attempt reflects the Israeli Tax Authority (the “ITA“) approach toward the reporting exemption to such individuals.

2. It is proposed to establish a refutable presumption concerning

   the management and control criterion of a foreign company, whereby if all of the conditions below are fulfilled, the foreign company will be considered as one whose business affairs are controlled and managed from Israel, meaning that it is an Israeli resident company for tax purposes, while this presumption may be refuted:

   A. 50% or more of the means of control in the foreign company are held by Israeli residents; and

   B. The tax rate applies on the profits of the foreign company is 15% or less; and

   C. One of the following also applies:

   i. The foreign company is a resident of a country that has not signed a tax treaty with Israel; or

   ii. The tax regime in the foreign country in which the company is resident is based on a territorial method;

   We should state that ostensibly, the connection between the tax rate or taxation method (territorial or worldwide) applies in the foreign country and between the place of management & control of the company’s business affairs is hard to understand, but it would seem that the ITA is trying to identify cases in which the issue of management and control have significant tax consequences.

   In addition, the proposed amendment contains a provision concerning the duty of reporting by any person arguing that the presumption stated above does not apply to him, much like another recently passed amendment, which dealt inter alia with such a duty to report for an individual arguing that he is a foreign resident despite the fulfillment of a substantial presence test.

3. With respect to multinational groups (whose revenue exceeds NIS 3.4 billion), it is proposed that reporting duties concerning transfer pricing be applied in view of the conclusions of action report No. 13 of the BEPS project, which deals primarily with submission of reports relating to the manner of implementation of the transfer pricing in an entire group of companies.

4. With respect to the provisions for a Controlled Foreign Company (“CFC”), it is proposed to establish a refutable presumption that revenues from interest, royalties and rents be considered as passive Incomes for the purposes of the CFC provisions, even if they constitute business activity. A similar provision was prescribed within a recent amendment effective since 2014 concerning the classification of income from the sale of securities as passive income, although with regard to securities sold after being held for more than a year, the passive income presumption is absolute and irrefutable.