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On February 15, 2015, the Israeli Tax Authority (hereinafter: "ITA") published a taxation decision on the subject of taxation of trusts (Taxation Decision No. 6893/15) (hereinafter: "the Decision"). Before we discuss the issues that arise from the decision, we must point out that in view of the Decision, incomes that have arisen from outside of Israel, whose beneficial owners are foreign residents – are taxed in Israel too.

As a rule, many Israeli companies are financed by shareholder loans. Interest that is paid to a shareholder, who is an individual, from a company that he owns (or that is held at a rate of at least 10%), is taxable at the marginal tax rate, according to the tax brackets of the shareholder (there is also the duty on the company to withhold the tax that applies in accordance with the maximum marginal tax rate, 48% today).

A foreign resident company (hereinafter: the "Foreign Company"), which is interested in operating in Israel may operate by setting up an Israeli company or through a branch that will be classified as a permanent establishment (hereinafter: a "PE").