Tax Break

John Fisher, international tax consultant

Lost before translation

Balfour was Prime Minister, Foreign Secretary AND looked like John Cleese

At a conference in Lisbon a few years back, I listened to a delightfully amusing talk by a former British Foreign Secretary (who is NOT now Prime Minister). He mentioned a near diplomatic incident some years earlier when he was speaking at a dinner in Japan. His quote from Matthew: ‘The spirit is willing, but the flesh is weak’ was translated as: ‘The whisky is good, but the meat is terrible’.

We have all smirked at some time or other over images of South East Asian signs ostensibly in English. The funny side is, however, sometimes lost when it comes to assembly instructions for cheap goods ordered over the internet from faraway lands, when we toil into the night trying to assemble them. The frustration is only exacerbated when we realize that some of the parts are missing or don’t fit, and there is nowhere to turn this side of Suez. (I would point out that last comment is not strictly true in my personal case). The High Street store has life in it yet.

Israel – the Start-Up Nation – prides itself on very expensive exports with excellent instructions (often an expert team sent abroad to install the very latest technology). On the other hand, we are still East of Suez, so something has to give in our relations with foreigners, the people who happen to make up most of the world.

An excellent example is Israeli trusts and their reporting requirements. The only thing the forms are missing is a label on the back stating: ‘Mad in Bangladesh’.

In case you’ve never seen it

By now, everybody knows that Israel’s fairly new trust tax law doesn’t fit reality. Gallant efforts by the tax authorities (and I mean that most sincerely, folks) to try and produce sensible practice out of it, most clearly resembles attempting to  sew Mama Cass into Marilyn Monroe’s ‘Happy Birthday, Mr President’ slinky dress.

In the last week alone, I was faced with two reporting howlers.

A trustee needed to report the formation of an Israeli resident trust. This would – according to the forms – inexplicably normally be done by the settlor. But, in accordance with the law, a trust that has been decanted from an existing trust looks to the settlor of the parent trust as the settlor. As is often the case in these circumstances, the settlor was in no position to file the forms because he was already dead. Choosing between a number of irrelevant options, the reporting accountant took a bash and ticked a vaguely relevant box. I was amazed when the trust’s  foreign advisor told me they were wrong, and pointed me to the ‘right’ box. And – in the world of wonky instructions for third world products – he was right. The English translation fitted the trust precisely. The only problem was – it was not a faithful translation of the official Hebrew which unfitted the trust precisely.

And then, I had to break the news to someone else that there is no form (I also thought there was, until I read them all in detail) for beneficiaries receiving cash distributions from a relatives’ trust on the 30% tax on distribution route. It isn’t really surprising – logic and intelligent interpretation of the law require tax on such distributions to be paid by the trustee, but the tax authority’s explanatory circular, as well as forms to be completed by the trustee, places the payment obligation on the beneficiary. On that basis, the reporting by the trustee is purely informative and no active tax file is opened. In the absence of access to the financial data of the trust (which is in the hands of the trustees), the beneficiaries cannot challenge the full 30% taxation on their distribution (the tax authorities talk loosely of the trustee convincing them – but, in their official eyes, what has he go to do with the price of cheese?), so there is already a mess. This is exacerbated by the fact that the line on the actual tax return for distributions from trusts is for both ‘liable’ and ‘exempt’ trusts. These terms have no meaning in Israeli trust tax law – but whatever they do mean (and I have my suspicions), without an accompanying form the tax authority cannot know who should be paying the tax (the trustee or the beneficiary). AND THERE IS NO FORM!

Tax returns in Israel are filed electronically. The days of the nice letter from Mrs Trellis of North Tel Aviv  to the nice tax clerk explaining the situation are over.

At a dinner in Tel Aviv a couple of years back, I listened to a delightfully amusing talk by a former British Foreign Secretary (who IS now Prime Minister). He referred to the residents of Bromley being a credit to their favourite son (or words to that effect). I turned to the British expatriate next to me and pointed out that Bromley’s favourite son was Charles Darwin. Reminds me of something, but I can’t (or should I say won’t?) put my finger on it.

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