To me, Israel’s National Insurance Institute is one of the last bastions of socialism in our essentially free-market economy. Despite legislation by the freely elected Knesset, it has always appeared to operate according to its own rules. Indeed, over an international tax career in this country spanning three decades, I was so confused that, when I would finish dealing with the tax consequences of anyone going to work abroad (and in this Start-up Nation, LOTS of Israelis go to work abroad), I would reach a point where I would simply tell them to visit their local NII office, provide a full explanation of their plans, and accept whatever they told them to do. That invariably resulted in a minimum (and I mean, minimum) monthly payment. When I did try to wade in – once sending not one, but two official letters for a ruling to two relevant addresses – I received two diametrically opposed answers.
The saddest thing of all is that the law is perfectly clear on the matter – an Israeli resident working abroad (unless governed by a Totalization – avoidance of double payment – Agreement between the two governments) is liable to full national insurance contributions on his or her income.
For decades the law might have been law, but bureaucracy was bureaucracy, and – as in any good socialist society – bureaucracy trumps law.
An appeal has just been heard to a case that was brought before a regional labor court back in 2017. The result is Kafkaesque. Hold onto your caps, comrades.
The case involved an individual who had gone to work abroad in 2009 and 2010 for a foreign employer. He did what any good free-marketeer (or even socialist) would have done at the time, and – on his tax advisors’ advice – trundled off to his local branch of the People’s Republic of National Insurance. They told him – as they did to countless others – that he would be required to pay minimum monthly payments during his sojourn abroad.
Four years after his return he received a (metaphorical) knock on the door from the men in raincoats telling him to pay up maximum (not nominal) amounts on the time abroad. The men in raincoats – as opposed to the bureaucrats manning the local offices of their Institute – clearly knew the law. The individual went to court.
In 2017, the labor court found in favor the little man. The judge sympathized with the plaintiff’s argument that, whatever the law, the clear practice of the Institute at the time was to charge the minimum amount. It even turned out that, when the NII dealt with the intrinsic problem in 2014 (a year conveniently sandwiched between the transgression and the claim for back payments) the reason for their cockeyed policy became apparent. There are three classifications for National Insurance – self-employed worker, employed worker, and not employed and not self-employed worker (‘worker’ is in the original, comrade). The first and last are required to pay over their own contributions; the second transfers obligation to pay to the worker’s employer. Foreign employers couldn’t be expected to pay the contributions, so workers in foreign employment were shoe-horned into the third category, which called for minimum payments. The judgement also made a big deal of the amount of time it had taken the NII to get to the individual, given that he had come clean prior to taking up the position.
Well, the appeal at the end of July, which took two long years to be heard, overturned the lower court’s position. The fact that the National Insurance Institute didn’t know its head from its backside was not a reason to relieve the individual of the need to pay – even years after the event. The Kafkaesque bit was that the judge even implied that – knowing the correct law – the individual should have come forward, reported, and paid. (In practice, the income tax authorities share the income tax assessment with the NII, and that is how liability is determined countrywide. Strictly, however, the reporting of that income to the NII is incumbent on the assessee).
Now, I don’t know the last time this judge turned up at a government office and told the bureaucrat behind the desk that – despite a clear monthly liability – they have got it wrong and they demand to pay more. I see the following scenarios:
- The bureaucrat telling them in no uncertain terms to kindly stop wasting their time while looking around for the hidden Candid Camera.
- The bureaucrat opening up an investigation into the individual’s affairs to find out how much they REALLY owe.
- The bureaucrat calling the men in white coats (as opposed to raincoats, this time) to cart the individual off to a place their employer will never find them.
In Yiddish folklore, there is a town full of fools called Chelm.