Tax Break

John Fisher, international tax consultant

Archive for the tag “Bar Refaeli”

An actor walks into a Bar

Not all Penguin books made it to court

At Penguin Books’ 1960 obscenity trial in the matter of DH Lawrence’s steamy novel ‘Lady Chatterley’s Lover’, the prosecuting counsel famously asked the jury of randomly picked men and women, ‘Is it a book that you would even wish your wife or your servants to read?’ The jury found in favor of the publishers, and both the judge and prosecuting counsel were laughed out of court, as out of touch with the modern world.

The appeal filed last week by supermodel Bar Refaeli’s lawyers against a decision of an Israeli District Court to side with the tax authorities in her disputed claim of  non-Israeli tax residence, appeared to suggest that the judge had also not learnt to move with the times. It argued that, had Refaeli been married to American actor Leonardo DiCaprio, rather than simply living with him in the U.S., there would have been no question that her center of life, and hence tax residence, was outside Israel. His Honor’s failure to recognize her ability to maintain her Israeli connections – while not her residence – in a world of social media, cheap telecommunications and affordable air travel was also seen as archaic.

However, as opposed to the Penguin prosecutor, who really did seem to have fallen out of the Downton Abbey woodwork, the judge was receiving some pretty unfair press here.

Hardly the first actor to walk around in a hat

When he was trying to get to the bottom of the couple’s relationship, the judge heard quite a bit of bizarre stuff from witnesses including Refaeli’s mother and a bosom-friend actress, whose embarrassing incoherence on the obscure subject of DiCaprio’s ubiquitous hat, as well as his lack of intimate communication with the supermodel’s friends, left me wondering whether actors are programmed never to come up with their own lines. (This, of course, was not a problem for Refaeli, who – thanks to the way she is programmed – doesn’t need to communicate verbally at all).

The issue that really needs to be examined is whether superstars should be treated like the rest of us at all when it comes to taxes.

Once upon a time, it was the aristocracy that filled the ranks of superstardom. Monarchs, who until not so long ago were considered to rule by Divine right, have not traditionally paid taxes. The Queen (there are many queens, but only one Queen) has paid some tax VOLUNTARILY since the early nineties, but she could change her mind if the housekeeping bill got out of control. Here in Israel, with a wink to the British Mandate, the president is exempt from tax on his presidential income.

Back in 1923, Virginia Woolf’s Mrs. Dalloway wondered excitedly– along with everyone else in sight – whether the mysterious occupant of a blacked-out limousine was the Prince of Wales, Britain’s future king. Faced with a similar scene in 1999, the Mrs. Dalloway of Michael Cunningham’s tribute novel, ‘The Hours’, hoped it might be Meryl Streep.

Divinity has passed to the superstars. Their irregular conjugal behavior – which the judge found hard to comprehend – is perhaps because they are extra-terrestrial beings, flitting from country to country and not bound by the rules of us mere mortals.

Even the OECD’s  model convention on double taxation singles out sportsmen and entertainers as the only professions with a specific article (17) to deal with their out-of-the-ordinary  international tax issues.

A sensible solution, based in part on Article 17, might be to only tax these gods and godesses in the countries where they work – one day here, one day there etc., without assigning them a tax residence. The downside would be that – thanks to those in my profession – before long, all movies would be made, and sports events held, in countries where there was no income tax.

Where shall we do this scene?

The movies could get over the obvious problem of ‘location, location, location’ with the latest CGI technology. But what about sports? Have you ever thought about zero income tax Qatar for the 2022 Football World Cup?  Not a blade of grass or pint of beer in sight. But, there will be. In abundance.

In the absence of  a foolproof alternative, it is probably wise to treat them like the rest of us. I believe that is what the judge was trying to do.

 

Embrace the Model Treaty

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A real heavyweight of the small screen

When wheelchair bound ‘Ironside’ star Raymond Burr walked confidently down the aircraft steps at Lod Airport in 1974, the reaction of the Israeli public was something akin to the second coming. Still caught in the long shadow of the Yom Kippur War, Israelis were far closer to Tom Brokaw’s ‘Greatest Generation’ than  consumerist 1970s Western Society.  But, that didn’t stop them going bananas over an American TV personality.

Nearly half a century later, Israelis have taken their dubious place in western culture, and they can now fawn and slobber over their own lesser stars. Bar Refaeli – whose completely unearned claim to fame emanates from a combination of heaven-endowed gifts and an unearthly attachment to  silicone – has the nation goggle-eyed over her tax affairs. Based on tabloid rumors, she appears to be in a civil disagreement with the Income Tax Authority over whether she was justified in claiming not to be resident in either Israel or the United States while she shacked up with an Italian-American actor, and in a criminal disagreement over whether she – and her parents – hid critical facts from that same, august authority.

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Tax inspectors are only human after all

More worryingly, the tax authorities themselves seem to have jumped on the media bandwagon with the announcement last week that a committee has been set up to review the criteria for tax residence with a view to establishing greater certainty. Oh dear.

Starting with  the last major tax reform in 2003, Israel has moved forward steadily with the removal of ambiguity about Israel tax residency in domestic law. There was a useful addition to the law in 2007, a requirement to report the basis for an aggressive non-residence position from 2016, and several landmark court cases in recent years. Furthermore, Israel now has double taxation treaties with substantially all the countries Israelis are likely to clear off to (Australia is taking up the rear), which take precedence over domestic law where there is a dispute.

What appears to have put up the Tax Authority’s blood pressure in the Refaeli case (and, in fairness, those of a few other mega-rich individuals) is the claim not to be resident anywhere. That was ably dealt with in a court case back in 2016 concerning a poker player, when the judge made clear that such cases would be rare in the extreme (he even quoted the classic case of a person living on a yacht in the middle of the ocean).

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Sometimes it needs more than the instructions

The problem, if there is one, does not arise  from Israel’s lack of certainty in defining residence. In fact, Israel – in broadly paralleling the OECD Model Treaty guidelines – has a very healthy approach, combining qualitative tests (a person’s center of life), and secondary quantitive tests (number of days present). The problem is that the United States, going it alone as always, relies – at the first level – on a purely quantitative approach. So, in theory at least, an individual like Ms Refaeli could make sure they did not hit the quantitative test in either country, while claiming ‘center of life’ in the United States, where they don’t really care. Hey presto! Not resident anywhere. Any effort to achieve more certainty – like in the United States pure quantitive approach – is probably doomed to abject failure.

judge

His judgment is not to be trusted…

In cases like Ms Refaeli’s, it is surely far safer to have an Israeli judge look qualitatively at the situation in the light of the facts, and then – as Her Ladyship dons her black cap – stare the  defendant coolly in the eye while pronouncing sentence.

 

 

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