Not subject to tax
‘It’s on in the morning, usually we have it on some of the time’.
That was the answer, a couple of days ago, to the question: “Do you sit down to watch the queen’s Christmas broadcast, Mr Corbyn?’ For the uninitiated, the Christmas message to the monarch’s subjects has been a cornerstone of British tradition ever since the present queen’s grandfather, George V, delivered the first radio broadcast, written by Rudyard Kipling, in 1932. Mr Corbyn, the man who may be kissing Her Majesty’s hands this Friday morning, might be forgiven for getting the time wrong – after all, the speech hasn’t ALWAYS been broadcast at 3 o’clock in the afternoon; in 1932 it went out at five past three.
In short, Britain’s possible next prime minister doesn’t seem to buy- in too much to the ‘monarch’ and ‘subject’ game.
Perhaps presciently, the recently ratified protocol to the Israel/UK double taxation treaty (see Tax Break January 27, 2019) which will come into force in 2020, dropped the word ‘subject’ in wholesale fashion. That appears to be a blessing for Brits transferring their tax residence to Israel.
The treaty, ratified in 1962 and updated by the previous protocol in 1970, suffered from two nasty blights that together offered a highly effective stranglehold on tax planning. The first was a clause near the beginning that relieved the paying country from offering treaty relief (reduced withholding tax or exemption from tax) to the extent that the income was only taxable in the other country ‘if remitted to, or received in’ that country. This covered quirks in both the UK and Israeli tax systems at the time, the UK charging certain types of resident to tax on a ‘remittance’ basis (still the case – British tradition dies hard), and the Israelis charging passive income to tax on a ‘received’ basis (abolished in 2003). The second was a peppering of the treaty with the term ‘subject to tax’. Dividends, interest, royalties and capital gains were only treaty relieved if they were ‘subject to tax’ in the other country. There was much debate as to what ‘subject to tax’ meant, but whatever it meant, the tax authorities tended to think it meant something else. As a result, when Israel introduced its 10 year exemption period on income from foreign sources for new and veteran returning residents, HMRC gave it a Churchillian salute – the treaty didn’t apply.
Well, in the new protocol, the remitted/received clause disappeared from the beginning of the treaty, only to reappear in substantially identical format at the end. But, like with Mr Corbyn, ‘subject’ appears to have been a dirty word to drafters – those ‘subject to tax’ clauses have been swept away.
Had the British drafters cottoned on that Israel had overhauled its system of taxation in 2003, they might have replaced the word ‘received’ with something more apt to catch the 10 year exemption which does not tax on receipt or remittance– but they didn’t. And there are no ‘subject to tax’ restrictions on passive income. That would seem to imply that new residents should, for example, be eligible for reduced 10% taxation on interest even though they are exempt from tax in Israel, and owners of copyrights or patents could be totally exempt on their royalties, not to mention recipients of pensions.
These are just musings. HMRC could, I daresay, look for loopholes and, in any event, anyone thinking of trying to take advantage of the situation must take advice from a UK tax expert before contemplating diving in.
As for the British General Election – I hope Mr Corbyn remembers to turn on his TV for the results. They are due in the early morning, rather than the afternoon.