Required Disclosure of Tax Planning
The Finance Committee of the Knesset (the Israeli Parliament), approved the Income Tax Regulations (Tax Plans Subject to Disclosure) 2006. The new Regulations include, for the first time, a list of 13 tax planning structures that the tax-payer is required to disclose to the Israeli Tax Authority starting in the filings for the year 2007.
Among others, the Regulations require disclosing the use of the following tax planning structures:
- Purchase of at least 50% in a company with an accumulated loss of 3 million NIS.
- Purchase of at least 25% of a foreign corporation, incorporated in a jurisdiction with a tax rate lower than 20% and receipt of income from such corporation.
- Purchase of at least 25% of a foreign corporation, incorporated in a jurisdiction with a tax treaty with Israel, were most of the assets of the foreign corporation are located in Israel.
- Payment of management fees to a related party in an amount of at least 2 million NIS during a tax year, if such payment reduces the tax applying to the said fees.
- Sale of an asset to a related party at a loss of at least 2 million NIS, and the loss was set of against profits during the two year period following the sale.
It should be noted that the Regulations require the disclosure of the chosen tax structure, but they do not rule that any of the above structures is illegitimate. The legitimacy of any tax plan will continue to be decided upon according to the existing law. However, if the tax plan is found, after review, to constitute artificial tax avoidance, the tax-payer may be subject to a sanction of an additional 30% of the tax saved due to the tax plan.
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