A recent Israeli court case that surfaced last week, however, jolted the rose-tinted spectacles from my pre-crisis, nostalgia ridden face. I was reminded that the world was already mad way back then.

A judge in the Tel Aviv District Labour Court issued a judgement in a case involving Israeli residence for National Insurance purposes. The case revolved around an Israeli family that left Israel in June 2013, maintained Israeli residence for National Insurance purposes, had second thoughts at the end of 2017 (and requested a refund for payments from 2015), and then promptly came back to Israel in September 2018.

What was notable was not the judge’s refusal to instruct a refund, but rather the muddled approach to residence in the case.  Over the last three decades, I have become used to the lack of consistency of  the National Insurance Institute in dealing with international issues.  It now looks like things can only get worse.

When it comes to defining income, the National Insurance Law is, albeit obliquely, joined at the hip to the Income Tax Ordinance. As a result, the National Insurance Institute derives an individual’s financial information from tax returns and/or local employers’ deductions reporting. Nothing silly about that.

When an Israeli resident goes abroad for a prolonged period, they often have an interest in trying to maintain their rights to national insurance benefits and health care. The published rule of the National Insurance Institute is that, if such an individual has ‘no income’ abroad, they pay a minimum monthly amount of NIS 177 (around $50). If, however, they have income, as an employee they pay up to 12% of their income, and as a self-employed individual substantially more. The exception is if there is a Social Security Totalization Agreement between Israel and the foreign country, when – depending on the specific circumstances – contributions will be restricted to one or other of the countries. For someone traveling to the United States (a popular destination for assignees and others) there is no such agreement, so Israeli residents are liable, in addition to US FICA contributions, to Israeli National Insurance payments with no set-off – which is potentially very expensive.

The good news, however, is that Israel and the US  DO have a double taxation treaty in respect of income taxes, such that – as long as non-residence can be established for income tax purposes according to the treaty – an employee of a US company will show no income on their tax return (if, indeed,  they file a return) which should lead the National Insurance Institute to charge NIS 177 per month if it considers residence is maintained according to its law. This, of course, is farcical logic – but not too painful.

The logic just became a little bit harder to swallow. The judge in the recent case had to decide on ‘residence’. The National Insurance Law does not contain a definition of residence, and relies on judicial precedent surrounding the concept of ‘Centre of Life’. That is the same overriding concept as in the Income Tax Ordinance, so it might be assumed that there was a clear road to consistency between the National Insurance Law and the Income Tax Ordinance to which, as previously stated, it is inexorably attached.

No such luck.

Firstly, the Income Tax Ordinance has developed over the years, providing a presumption of residence based on days in Israel, and a specific definition of foreign resident that provides a pretty clear exit route from Day One to anyone who can later prove that they were gone for at least 4 years. In the absence of any statutory guidance, the National Insurance Institute’s default period (always subject to alternative interpretation) is 5 years.

Secondly, the judicial precedent on which the judge  relied for her definition of ‘Centre of Life’ was not of the regular courts that hear tax cases, already implying a parting of the ways in interpretation.

Maybe it is all a plot to drive the population to an early grave and close the social security funding gap. Fiendishly clever, if so.