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KLF

ISRAELI TAX LAW FIRM

Tax News

KLF
Israeli Tax Law Firm

Tax Update

Our firm believes in providing comprehensive legal services. Aside from personal and private legal advice, clients of the firm obtain a useful and comprehensive collection of instruments for dealing with the tax issues optimally. Furthermore, our firm takes care to keep our clients up to date on tax developments that are relevant and important to them, based on their line of business and their circumstances.

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Feb 16, 2022
Residency of a company for tax purposes

Section 1 of the Ordinance states that a corporation is regarded as an Israeli resident if it was formed in Israel or if control over the company's business and management is exercised in Israel - the "test of control and management." To conclude that control and management were performed from Israel, the courts in Israel have repeatedly struggled to apply this test, with the rule passing as the second thread being that emphasis must be placed on the essential components of control and management, not just the formal ones.

In other words, if a company incorporated outside Israel is managed and controlled from Israel (the identity of the owner, who controls the company, where the company's business policy is determined, where strategic decisions are made, and so on), the company may be classified as an Israeli resident for tax purposes and therefore pay taxes in Israel and around the world.

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EN

Feb 1, 2022
Preventing the abuse of double taxation treaties

As one of its primary goals, the BEPS program set out to address international tax planning. These designs make use of, among other things, the provisions set forth in the tax treaty for the goal of reaping benefits and tax reliefs that erode nations' tax bases.


The BEPS method defines inappropriate exploitation or misuse of a tax treaty as the application of the provisions stated in the treaty to seek relief or advantages in a way that the parties to the treaty did not intend ("treaty abuse"). Arranging or entering a transaction with the primary goal of obtaining benefits under a tax treaty is also termed inappropriate exploitation of a tax treaty. One of how the BEPS program has taken to deal with the abuse of art is by establishing a general anti-planning provision whereby treaty benefits can be avoided in those cases where one of the administrative purposes for which a structure or transaction is created. Done for tax relief.

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EN

Jan 23, 2022
shareholder withdrawals from the company's loan or dividend?

withdrawals of the owners were recorded as "shareholder payments" (loans) in the financial accounts of a particular company, and even interest income was recognized with the withdrawals by the provisions of Section 3 I of the Regulation of Israel Taxes.


Section 3 (i1) (2) of the Israeli tax ordinance states that if the withdrawal funds were not returned to the company at the end of the tax year following the tax year in which they were withdrawn, the withdrawal from the company will be considered as a shareholder income and classified as a dividend.

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EN

Jan 23, 2022
Classification of compensation for tax purpose

To classify the taxpayer's compensation, it must be compared to the reason for which it was received. If the compensation is paid from taxable income as defined in Chapter B of the Income Tax Ordinance (withholding rate of up to 47 percent) or Chapter E of the Ordinance (income from capital gains). If the goal of the compensation is to compensate the taxpayer for the loss of the source of income rather than for the revenue from daily activities, it will be taxed under Chapter E of the Ordinance (Capital Gains).

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