Trust Bloomberg Tax's Premier International Tax offering for the news and guidance to navigate the complex tax treaty networks and business regulations.
By Matthew Kalman
Israel’s top tax official doubled down on a plea to repeal a controversial reporting exemption for new immigrants, which he said has turned the country into “one of the best, or worst, tax shelters in the world.”
Introduced in 2008, the tax break exempts Israel’s new immigrants and some returning citizens from reporting foreign assets and passive income for a decade after their arrival. Dubbed the “Milchan Law” after its most prominent beneficiary, it is at the center of a criminal investigation for bribery against Prime Minister Benjamin Netanyahu and Hollywood producer Arnon Milchan.
Moshe Asher, who is due to retire in March as the Tax Authority director general, told the State Control Committee of the Knesset parliament on Feb. 26 that he had tried and failed to amend the law “year after year” since assuming his position in 2013. Israel also narrowly avoided being sanctioned by the OECD and World Bank for the exemption, Chief Economist Yoel Naveh told the panel.
“The reporting exemption is invalid in principle and there is no reason to grant it. We have been walking blind for 10 years. We do not know how much the exemption costs, how many people got it, how many immigrated because of it, how much they invested, what we gained and what we lost, “ Asher told the committee.
The law encourages investment abroad “because on domestic investments immigrants and returnees pay full tax from day one,” Ahser said, adding he tried to repeal a related law allowing the minister of finance to extend the reporting exemption by another 10 years in certain cases. “The time has come to amend this law—and the sooner the better.”
Yoseph M. Edrey, professor of law and tax policy at Haifa University, recalled a Knesset legal adviser calling the day before a Knessett committee approved the tax law. Edrey urged her to warn legislators against approving it.
“She said they were going to do something totally unbelievable,” Edrey told Bloomberg Tax Feb. 27. “Totally wrong and it shouldn’t be done. As a loyal citizen I came. It was a terrible experience.”
The then tax authority chief supported the bill and accused Edrey of disloyalty to his country. “They were not interested in listening to me,” he said.
Reviewing the law in 2014, Israel’s state comptroller identified suspicious money-laundering activity in 100 out of 600 cases of new immigrants and veteran returning residents between 2008-2012 and recommended limiting the exemption.
The law has continued to draw international criticism. A 2016 OECD Global Forum peer review report highlighted “a legal gap” in transparency relating to trusts and companies controlled by new immigrants and returning citizens. The U.S. State Department called Israel a “major money laundering” jurisdiction in a 2016 report.
The exemption keeps Israel from providing information to authorities through information exchange agreements, said Moran Harari, founder and director of Tax Justice Network Israel.
“The law provides a back door for tax evaders and criminals to immigrate to Israel while keeping their earnings hidden from the Israeli authorities and as a consequence from other governments as well,” Harari told Bloomberg Tax in a Feb. 27 email.
The exemption’s repeal should be accompanied by expanding reporting obligations for other taxpayers, said Boaz Feinberg, a partner at Zysman, Aharoni, Gayer and Co. law firm in Tel Aviv.
“Obligating those who immigrated from a different country to file yearly reports regarding income they generated through their foreign bank accounts places them at a disadvantage compared to local residents who have generated income through their bank accounts, and are not liable to any reporting obligations due to the banks’ withholding tax scheme,” Feinberg said by email Feb. 27.
Many wealthy immigrants, mainly from western countries including the U.S., Canada, South Africa and France, made the decision to immigrate “while taking the special tax exemption into account as a major consideration,” he said.
To contact the reporter on this story: Matthew Kalman in Jerusalem at firstname.lastname@example.org
To contact the editor responsible for this story: Penny Sukhraj at email@example.com
Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)