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Israel's Finest

Israel’s Finest

Tax Break has just had its longest break since its inception in 2011 due to the difficult period Israel has been going through. The post below is more sober than usual (in fact, for some people, it might be downright depressing). Please do not adjust your computers – normal service will be resumed as soon as possible.

Shortly before Israel, in order to protect its population from the indiscriminate firing of missiles from Gaza, was left with no alternative but to enter into a bitter war with Hamas, the Israeli Tax Authority embarked on its own “seek and destroy” mission.

The targets were Israeli residents who “omitted” the reporting  of income to the ITA.

The Income Tax Commissioner has stated on several occasions since taking office last year, that he favours a policy requiring all residents to file an annual return – as opposed to the current situation where most employed individuals are covered by withholding tax on their salaries and transactions  through Israeli financial institutions.

Even 007 wouldn't refuse Odd Job cash

Even 007 wouldn’t refuse Odd Job cash

Apart from the scourge of incorrigible Odd-job men who have, “Pay me in cash and I will knock off the VAT,” woven into their DNA – as well as monthly property rentals paid for in grubby two hundred shekel notes – the real problem in 21st century Israel is income from abroad.

Until 1998, when the foreign exchange market was opened up and Israelis could freely invest overseas, the system worked quite well. If you had income-bearing assets overseas, you were, by definition, a naughty person (euphemism for a  crook). Even our most lamented, assassinated Prime Minister was caught red-handed holding an American account from the time he served as Ambassador in Washington (to be more precise, it was his less lamented wife).

Nowadays, apart from occasional new immigrants with all sorts of exemptions, anybody holding income-bearing assets abroad is required to come forward and voluntarily file a tax return (sometimes just a ‘short-form report’).

Aye, and there’s the rub.

It is evidently a lot easier to break the law by “omission” than “commission” and the Income Tax Commissioner believes there are unbelievable sums of undeclared income offshore.  He reasonably concludes that, if individuals had to file  a return that included a declaration that any false statement could result in the cutting off of their hands and feet, most would come clean.

So far, so good.

The Authorities have, however, admitted that, with current staffing levels, a nationwide filing requirement is not on the cards. As a result, they came up with the rather clever idea of sending a letter to 120,000 individuals who do not currently file a return, but who make regular trips abroad, own more than one property or just look plain suspicious.  The polite letter is accompanied by  a form to be honestly completed and signed (on pain of death).

This all sounds eminently sensible, but allow me to apparently digress for a moment.

The authors of the cult book ‘Freakonomics’,  who have been milking the franchise for all it is worth, recently came out with their latest, very underwhelming, ‘Think like a Freak’.  I found only one notable idea in this tome,  but it is a real eye-opener. Have you ever thought (like every week) when you receive a spam email from Nigeria in search of your bank account, why the scammers don’t move on from Nigeria to, say, Zambia? Surely, the logic goes, everybody knows that Nigeria is synonymous with fraud? It turns out that the scammers are not as stupid as they seem as they bob  about on their hundred foot yachts in the Caribbean.

The Nigerian scammers work to minimize ‘False Positives’. The e-mail you receive in your spam-box has been sent simultaneously to millions at  virtually no cost in time and effort. If only one per cent got back to them with queries or a possible desire to invest, they would need armies of potentially whistle-blowing staff to handle the correspondence. The only people who will respond to these e-mails today, apart from Interpol and the odd Nigerian,  are real fools who have been out to lunch for the last 10 years. They are, almost by definition, totally gullible.  The Nigerian bit weeds out the ‘False Positives’.

Now, given that the tax authorities admit that they are short of manpower,  the form accompanying their ingenious plan should have been simple.  It should have asked a series of Yes/No questions followed by threat of  extermination and excommunication. The 120,000 forms could have been run through a computer in an afternoon and the few thousand guilty would have received notice that their lives are henceforth ruined by the following morning.

Why didn't somebody think this out?

Why didn’t somebody think this out?

But this is Israel. Instead of delaying the process by half a day, they decided to send out the standard document for the voluntary opening of a tax file. Let alone the individuals, it wasn’t clear to us tax advisors what needed to be filled in. Furthermore, the form  asked for a considerable amount of information that will mean each one needs to be waded through manually. According to some commentators, it will take months to get through the pile.

Thankfully, the army went about its business more systematically. God bless the State of Israel and its excellent defence forces.

 

 

No flies on them, mate

Some people will go to extreme lengths not to visit Australia

Some people will go to extreme lengths not to visit Australia

Filling in the immigration card at the start of the descent into Melbourne International Airport earlier this week, I could not help but chuckle as I checked the “No” box against the question “Do you have any criminal convictions?”  I was unavoidably reminded of that hackneyed joke, attributed to the late Tony Hancock and especially popular among up-ourselves Poms, who is reputed to have answered: “I didn’t know it was still a prerequisite”.

One of the purposes of my visit to Australia is to speak at various events on the topic of the Business and Taxation Environment in Israel. As, a few weeks prior to my trip, a senior Israeli Government Minister had done the rounds here, I decided to ask him what he had spoken about. “Business and Zionism – I avoided politics.” When I replied to his enquiry as to my subject: “Taxation”, he slapped me on the back and suggested that perhaps I should speak about politics.

Remarkably, in the three weeks since preparing my presentations for the visit there have been no less than two momentous events directly affecting the taxation environment in Israel as well as an indirect one. Luckily, my powerpoint slides and the bloke talking around them, are sufficiently vague for nobody to have yet noticed the hurriedly shoe-horned bits. But the trip is yet young.

Just trying to do the right thing

Just trying to do the right thing

First off was a proposed amendment to the Income Tax Ordinance, tabled in the Knesset on January 29, that – if, and when passed – will empower the Income Tax Authority to demand automatic supply of information on  foreign residents’  income in Israel (primarily from financial institutions) and allow its voluntary transfer to foreign tax authorities on the basis of an international agreement that is not necessarily, as at present, a double taxation agreement. This, of course, smells of the brown-nosing that in school earned a thoroughly deserved duffing-up behind the bicycle shed by ones classmates. But the Israeli authorities are only bowing to the inevitable pressure from the G20 and OECD to ensure worldwide automatic exchange of information – one of the main tools in the international fight against tax evasion.  Passage of the law will pave the way for Israel to become the umpteenth signatory of the OECD’s sexily named “Multilateral Convention On Mutual Aministrative Assistance In Tax Matters” (MCOMAAITM…just kidding), which provides a legal basis for countries to agree on the said automatic exchange of information.

Confirming the timeliness of the Israeli move, on February 13 the OECD met its deadline to provide “A Standard for Automatic Exchange of Financial Account Information” (ASFAEOFAI….never mind) in time for the meeting of G20 Finance Ministers and Central Bank Governors on February 22 – 23 in Sydney (where I hopefully arrive just as they are leaving – it is all in the timing). This standard is based on the US FATCA rules and, when implemented either through bilateral or multilateral agreement, will require financial institutions to do those things the Israeli proposed legislation aims to facilitate. Automatic exchange of information will not be required where the other party does not reciprocate (you scratch my back and I’ll scratch yours) or where the other side is unable or unwilling to guaranty secrecy (being a brown-nose is one thing, but never a sneak).

However,  perhaps the most momentous event came to light early this morning (which was yesterday in Israel). I awoke to discover that an eminent  Tax Lawyer-friend with whom I had worked closely until I boarded a flight for Hong Kong last Sunday evening,  had been appointed a District Judge along with another equally eminent Tax Lawyer who was not a friend and with whom I had not worked closely at any time before boarding that flight for Hong Kong last Sunday evening.  It is evidently rare in Israel for partners in Law firms to be appointed directly to a senior court – but this reflects a welcome seriousness of purpose on the part of the Israeli authorities and raises the bar on the professionalism of the judiciary in deciding tax matters.

Another way of dealing with the latest mad-cap trust legislation

Another way of dealing with the latest mad-cap trust legislation

All in all, when I started preparing my presentations in January the Tax Environment was looking far more mature than at any point I can remember. The events of the last three weeks have only enhanced that position. There is, however, one exception: the new mad-cap trust legislation – concocted by the Tax Authority –  that came into force on January 1. The amended law needs to be placed on a convict ship and transported to Australia, never to return.  While I have every respect for the officers of the Income Tax Authority, it would not be a crime if one day the Finance Ministry were to take a leaf out of the Justice Ministry’s book and decide to appoint partners from major  law and accountancy firms to senior positions in the Tax Authority. After all, the present Australian Tax Commissioner is a retired partner of one of the Big 4. No prizes for guessing which one.

Reach for the sky

Dutch landscape. Anyone for Mars?

Dutch landscape. Anyone for Mars?

A  story  about a Dutch company that did the rounds of the world’s press on April 23 got me checking whether the Netherlands, ever the laid back pot-smoker of Europe, celebrated April Fools’ Day a few weeks late. In a grand press conference it was announced that candidates are invited to apply for a one-way ticket to Mars sometime in the next decade. The project is to be funded by  Reality TV rights. Welcome to the 21st century.

While Britain has a Royal Society for the Prevention of Cruelty to Animals, it does not have a Royal Society for the Prevention of Cruelty to Dumb Humans, so I was not surprised when the BBC World Service cornered their prey a few days later. It turned out that one of the first people to put their name down for the flight was a young man with a distinct Lancashire accent. Now, if you are not a Brit you should understand that, while the BBC World Service has (highly competent) presenters from Uganda, South Africa, Canada and South-East England, it does not have many Lancastrians on its books. Someone searching for a broad Lancs accent on the BBC would be better-off tuning into Premier League Darts or The World Snooker Championship. This is entirely unfair to natives of Lancashire who are, of course, every bit as intelligent as everybody else,  but it is an unfortunate urban fact.

Asked why he had applied, the Lancashire lad mentioned the appeal of Reality TV (OMYGOD) and then went on to talk of a new Frontier. At this point I clasped my steering wheel tight as I zoomed along the highway and braced myself for the inevitable G Force comment that was  about to pin me to the back of my seat. And it did. He calmly told the interviewer that he wanted “to boldly go where no man has gone before”. Aaagh!

Talking to Israeli tax officials over the last week, all that was missing was that ping-pong-ball-stuck-in-the-back-of-the-throat Lancashire accent. Included in the just released preliminary draft of the Government’s Omnibus Bill were the first significant adjustments to the international tax provisions of the Income Tax Ordinance in 10 years.  Listening to these highly intelligent people one could have been forgiven for thinking that they had just proposed the most radical shake-up of the tax law this side of the turn of the Millennium. A new frontier.

In reality, the amendment is less Starship Enterprise and more Apollo 13; less Captain Kirk on the ship’s panoramic deck and more Jack Swiggert trying to patch up the mess in the service module.

Come out with your tax opinions above your heads!

Come out with your tax opinions above your heads!

The main thrust of the proposal is in the area of CFC (Controlled Foreign Corporations) where many of the gaping holes in the legislation will be closed. As regards the fundamentals of the CFC regime,  on the one hand, the law will be expanded to include companies with more than a third (previously a half) passive turnover or profit while, on the other hand,  the CFC cut-off tax rate will be reduced to anything above 15% (currently 20%). The sad thing is that they did not use the opportunity for a clear re-think of the desirability of the law in its present format. It would have been nice to see some bold proposals rather than the S.W.A.T team peering nervously around every corner in search of possible tax avoidance schemes as they inch towards their target.

There is a change to the calculation of Foreign Personal Service Company income which closes a much abused loophole using companies in treaty countries, and a very controversial proposal to require new residents to report their foreign income. Under a 2008 amendment new and returning residents are exempt from tax on foreign income for 10 years. Until now they have also, perfectly reasonably, been exempt from reporting such exempt income. Perhaps not much longer.

But the daddy of them all is the proposed change to the 2006 Trust provisions. The Trust provisions have, since their inception, given rational  advisers a headache. They were a valiant and, largely successful, attempt to prevent tax avoidance but, in their over-enthusiasm, left Israel taxing foreign trusts when there was no connection to Israel not to mention other weird and wonderful outcomes.

The new provision, although  seeking to tax previously untaxed income from trusts settled by bona fide foreign residents,  offers a glimmer of hope regarding those trusts where a settler dies and all beneficiaries  depart for other shores.

Somebody has been reading the wrong book

Somebody has been reading the wrong book

The trouble is that, while they have had since 2006 to think about trust amendments,  the authorities have managed to come up with some of the most ill-conceived mis-drafting seen in years. Together with colleagues from other accounting and law firms, I have been trying to join the dots all week. It has been like trying to get a sleeping bag back in its sleeve – every time you think you are there, something bulges out somewhere else. Perhaps they would do well to take a leaf out of the Beatles’ book; it is said that they composed some of their best lyrics when they were stoned.

I am reminded of a Yiddish expression which, roughly translated, goes: “He spelt the word ‘Noah’ with seven mistakes”.

It will  be interesting to see if the authorities get all the bugs sorted out in  the formal draft. In the meantime: “Houston, we have a problem”.

The perfect spy

About as popular as Richard III, they didn't give him a single ticket in 527 years

About as popular as Richard III, they didn’t give him a single ticket in 527 years

Monologue or soliloquy: that is the question. When Shakespeare’s Richard III – as opposed to the bloke of that name who has been illegally parked in Leicester for the last 500 years – first ambled awkwardly onto the stage back in Elizabethan times, he delivered a soliloquy. Now, a soliloquy is what I  deliver when I think I am lecturing my teenage kids but am, in fact, talking to myself. “I, that am rudely stamped, and want love’s majesty to strut before a wanton ambling nymph” was Richard’s mischievous think-out-loud excuse for the other kind of obscene havoc he was about to wreak.

The great Laurence Olivier, making the part his own at the New Theatre in 1945, played that first scene differently. Walking onto the stage, he was about to speak when he hesitated, turned, walked to a door at the side, closed it firmly, walked back to the same spot and started: “Now is the winter of our discontent …” With that simple act he turned the soliloquy into a monologue. That kind of monologue is what I, mistakenly, think I am delivering when I am lecturing my teenage kids. The closing of the door meant that Richard was about to talk directly and secretly to the audience, extending the stage to the entire theatre.

You can get away with that kind of trick in the theatre, where the script is already written and leaks don’t matter. In real life, you are likely to end up with rotten tomatoes all over your face.  Take Israel’s decade-old tax reform for example.

Ten years ago, on January 1, 2003, Israel abandoned its old bastardised territorial taxation basis for, what was then seen as, a more state-of-the-art personal taxation system. Remarkably for Israel  where, similar to weeds,  laws often grow overnight, there was plenty of warning. The legislation was published in May 2002 with various transitional provisions, to give the taxpaying public time to organize their affairs. So far, so good.

As is the wont of our calling, tax specialists from Dan to Beersheba  had the wording on the dissecting table within  5 minutes of its hitting the newsstands. And, as with all new legislation, there were plenty of glorious loopholes. We might have been too busy to get home  to our next of kin, but at least there would be guaranteed bread, meat and ale on the table for years to come while the tax authorities slowly caught up with legislative amendments. That, dear reader, is how we, of deformed profession,  get our kicks.

Then, the Laurence Oliviers got going playing to the gallery.

It never got as bad as this

It never got as bad as this

Articles by the flotsam and jetsam (as well as occasionally sane and, hitherto, respected gurus) started popping up in the national press. Trying to up their profiles, these individuals published tax planning ideas arising from the reform. Austria, previously best known to Israelis as the birthplace of Hitler, became the place to set up a foreign holding company. The Netherlands, the previous hotspot for international holdings that the new CFC legislation had specifically sought to nuke, would actually survive. And the list went on.

I remember sitting in horror as articles were dropped on my desk (often by smirking audit people – Auditors are to Tax Consultants what the House of York was to to the House of Lancaster). But why was I worried? The Tax Authorities do not read newspapers, right? Wrong.

Thanks to all those egomaniacs, late in  2002, in what was probably a first for tax legislation in the State of Israel, an amendment to the new law was passed by the Knesset BEFORE it even had a chance to come into force.

Of course there was still plenty wrong – both from the perspective of the tax authorities and the taxpayers. What is really weird is that, despite protestations from all sides, there has been very little legislative change since. That is not to say that tax has been ignored by the Knesset. There have been plenty of other amendments – trusts, incentives, even a super-retro medieval pure territorial basis for new residents and old-timers coming home. But the great reform of 2003 is, ten years later, still pretty much the same.

We have a highly limited  underlying tax credit system that all sides agree, distorts international structuring. CFC legislation misses its goal by a mile. There is a Participation Exemption that everyone has forgotten (I am only aware of it having been used once). Transparent Company rules were made dependent on the Finance Ministry drawing up regulations – we are still waiting. Setting off of foreign income against losses is barmy (a senior tax official once pleaded with me to find a loophole, as he agreed that the double tax my client was facing was totally unfair). And the list goes on.

The biggest irony is that the Knesset passes laws with frightening ease. In a unicameral (single chamber) system a law can go through 3 readings while most Knesset members are out to lunch. That is actually grossly inaccurate – if the Knesset were a theatre it would close down after 3 performances. Most of the time there is hardly anybody there to go to lunch.

There is, however, light at the end of the tunnel. The incoming Tax Commissioner is a career tax authority person with extensive experience in the international tax sphere and a real desire to get things done – King Henry VII, so to speak. Tax Break wishes him well.

The absolute triumph of hope over experience

The absolute triumph of hope over experience

Shakespeare’s most famous soliloquy was, of course, “To be, or not to be: that is the question”.  The no-less-great-than-Laurence-Olivier, Richard Burton once  related that, as a young actor playing Hamlet at the Old Vic in the 1950s, he began a performance to uncomfortable accompaniment. As he started his first speech he discerned a low growl coming from the audience. Looking down between the footlights he made out a rotund old man who, he soon realised, was reciting the lines by heart together with him. At the end of the play, as Burton sat in his dressing room with a whisky and cigarette, the old man suddenly appeared at the door. “My dear Lord Hamlet, may I use your lavatory?”, he lisped. Rather than telling him to get lost, Burton graciously agreed.

The rest of the conversation was not recorded for posterity but, it is to be assumed, Churchill was duly relieved.

To tax or not to tax…..

It all makes sense to him

Forced to summarize Israel’s international tax legislation in half a sentence, I could not better Shakespeare’s all time bogeyman – Richard III:  

“Deformed, unfinished, sent before my time/ Into this breathing world, scarce half made up”.

Tax legislation in the first half-century following Israel’s independence adopted, what might now be termed, the “Mitt Romney Approach” –  inconsistent but pragmatic. At a time when citizens were largely barred from investing abroad, work income and capital gains were charged to tax on a worldwide basis while income such as dividends, interest and royalties from abroad were, in practice, exempt.

Then, following liberalization of exchange controls and serious personal and corporate investment abroad in the late 1990s, legislation passed the Knesset in mid-2002  moving Israel to a pure worldwide basis of taxation with effect from January 2003.  This almost pedestrian approach to enforcing the new law – allowing around six months to get organized –  was, and is, in contrast to the normally frenetic approach  adopted by the Knesset, Israel’s parliament, which regularly enforces  legislation almost overnight (and, sometimes, the previous night or earlier).

This may explain the remarkably naive stance adopted by certain respected tax advisors at the time, who insisted, to the horror of the more worldly among us, to advertise their prowess at every opportunity in the national  press, explaining the broad (but, rarely, precise) methods to legally circumvent the new regime.

While the income tax authorities could (and can)  be accused of many things, illiteracy is not one of them and, lo and behold, they managed to fit the art of newspaper reading  into their busy schedules. It was therefore little surprise to the mature and experienced when, prior to enforcement of the new law, an amendment to the amendment was passed in the Knesset to close the loopholes that had been so altruistically revealed by our fellow professionals.

But, as Hamlet (topically since Israel has just ratified a new double taxation treaty with Denmark) said – “Aye, there’s the rub”. 

The authorities were in such a rush to get the legislation passed ahead of the January 1 deadline that the adjustment left much to be desired ( for them, if not for the rest of us). To add to the misery that awaited them, they had insisted in going it alone with the legislation. They had neither canvassed extensive public comment nor, apparently, recognized that, not being the first, second or fiftieth nation on earth to adopt a worldwide basis of taxation, it might be wise to benefit from the learning curves of others rather than starting from scratch.

The result was : a flawed system of credit for foreign taxes paid; ambiguous controlled foreign corporation rules, the latest explanatory notes in respect of which came out only a month ago – nine years after the legislation came into effect; a participation exemption regime that  literally exempted almost everyone from participation and, from day one, was treated as if it had leprosy; and a tax-transparent company system that has transparently gone nowhere. We were subsequently introduced to Trust-Nobody Trust rules in 2006 and, two years later, the Worldwide Untax Regime for new immigrants and returning residents.

While this blog will endeavor to maintain a truly international flavor, I make no apology for including from time-to-time in the weeks and months ahead, reflections on the system with which I have an “up close and personal” relationship. At the end of the day there is much more that unites countries in their international taxation rules than divides them and I hope those reflections are of interest to everyone.

Amnesty International

English: United States Internal Revenue Servic...

Image via Wikipedia

The casual observer may be forgiven for thinking that last month’s announcement by the Israeli Income Tax Authorities of a  new amnesty  program for foreign undeclared income was motivated by the realization that if – as the US authorities close in on tax evaders – Israel does not act fast, all the “captured” tax of US citizens living in Israel will flow into the coffers of the US Treasury.

 

Back in 2005 the ITA started a Voluntary Disclosure Program to enable Israeli tax residents to come clean on their undeclared income. The scheme, which was open-ended,  offered immunity from criminal prosecution but not much else. The announcement in November 2011 that Israeli residents coming forward by the end of June 2012 could hope to pay the tax, without interest or penalties, on undeclared foreign income was a far more tempting proposition.

The conditions under which the foreign undeclared income is eligible for the amnesty, beyond the requirement that the applicant has broadly not been caught red-handed,  are flexible – but the sample list given by the ITA provides an indication as to the  extent that this was aimed at immigrants: undeclared income from foreign assets inherited from, or gifted by,  a foreign resident; undeclared income from foreign assets that were purchased using funds that arose from income taxed in Israel or income that was not liable to tax in Israel; and undeclared income from foreign assets that only became liable to tax from 2003 when the Israeli system moved from a largely territorial basis to a worldwide basis. 

Remembering that  Israeli-born residents were heavily restricted in their ability to invest legally abroad until the end of the last century, the bias towards Olim from “Western Countries” (which is a euphemism for the US, since the English, French, Canadians and others are just a statistical error in the ITA’s worldview of lost tax) is obvious.

Now that the IRS has won the battle in Switzerland and  should  soon finish bayoneting the wounded, it is widely rumored that the next stop on its tax-grabbing crusade will be the Holy Land. Hence,  the timing could not be better for the ITA to step in and suggest that people pay up in Israel, which in most cases has the first right to tax. This may have a mitigating effect on subsequent disclosure to the IRS, given its newly instituted softer approach to dual citizens (see earlier post), especially where they have declared the income abroad – but it is too early  in the day to draw any firm conclusions.

The potential downside in the whole affair is that any application under the amnesty is to be considered by a Star Chamber of senior income tax officials. There is a promise  that, even if an application is rejected,  the facts will not be used in evidence elsewhere.

When I read this, it reminded me of my first year in High School. There was a particular teacher who had an unfortunate habit of boxing pupils around the ears (which, judging by his level of intelligence, is probably what happened to him as a child). We quickly learned, as he approached, to raise our hands to cover our heads. He would then go through the standard ritual (which took longer each time, as the months rolled by) of telling a poor victim to put his hands down because he was not going to hit him; I do not need to finish the story.

However,  in practice, it seems that it may be possible to initially present the facts to the ITA anonymously and only name names when it is fairly apparent that the application will be accepted.

Overall, these are interesting times for people who have undeclared income and there is a window of opportunity that  could be, for many, the Last Chance at the OK Corral.

The best of times, the worst of times

As 2011 prepares to hang up its boots,  closure is finally coming to one of the finest specimens of legislative panic in recent Israeli history.  With the coalition government resembling  a concoction of weird and wonderful characters from the Complete Works of Charles Dickens and the middle-classes appealing “Please sir, we want some more”, the stage was set  mid-year for a roller coaster autumn full of surprise twists and turns.

 Following a summer of social protest  over the lack of economic fairness in the country and formation of a committee to recommend ways to back out of the “No Thoroughfare” , early fears of a politically motivated Estate Tax – always more of a rabble pacifier than a revenue earner –  gradually abated.  Then there was the proposal to apply a 2% “supertax” on the wealthy which fell off a cliff at the last moment (but might experience one of those miraculous literary recoveries and come climbing back up next year).  Meanwhile, lurking in the background was the perennial  threat of a National Insurance hike: we had already experienced the temporary doubling of the National Insurance  ceiling which followed, about a decade ago, the temporary total cancellation of the National Insurance ceiling which had meant at the time a whopping effective top marginal tax rate of 67%.

The amazing thing, however, is that what finally got thrown up, whether you agree with it or not, makes sense – like the unusually tidy endings of Dickens’s Christmas stories.

The marginal tax rate came to rest at 48% – a clear statement of policy that individuals should be left with more than half their income in their hands (until the government decides otherwise); national insurance was put back in its traditional box with its traditional ceiling; tax on passive income was hiked from 20/25% to 25/30%. What is more, it was not an immediate knee-jerk, but imposed from January 2012 giving taxpayers the chance to sensibly plan the transition – including dividends at the 25% rate in 2011 as well as 2011 bonuses and the theoretical sale of assets – although time is fast running out.

 

Of course, being Israel, not everything has gone totally smoothly. While legislation raising the tax on passive income has passed, the tax authorities and legislature seem to be struggling with the updating of Regulations which, given that they basically involve the crossing out of one tax rate and replacement with another, could be done by a five year old with a spirograph. This means, for example, that unless the  authorities get their act together by the end of this week, public companies paying a dividend in January 2012 face the dilemma of whether to deduct the new rate at source (which is the recipient’s tax liability) or follow the existing  Regulation for tax deduction that has not yet been updated and leave the recipient with the obligation to file a tax return (which, in the case of foreign resident recipients is normally a theoretical point).

 

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