On New Year’s Eve, a man’s thoughts turn to the year that has just flown by. On the eve of a new decade, a man’s thoughts turn to the decades of his life that are lost. What has happened since I sat glued to my grandparents’ gogglebox at five to midnight on Hogmanay in 1969? I wonder if that drunk lying on the roof of my car pretending his arms were a pair of windscreen wipers, as I inched away from Trafalgar Square in the first hours of 1980, is still alive? (Come to think of it, I never looked back to see if he was still alive when he fell off.)
Nostalgia was not quite the word that came to mind when I noticed the other day that the Israeli Income Tax Authority had once more extended Annex 1 to Instruction 34/93, while renewing a sweetener as a sop to the modern world.
When, early in my international tax career in this country, 34/93 hit the scene, it was something of an eye-opener. The instruction dealt with the requirements for deducting tax at source on payments abroad and, for the first time, included the country’s banks as gatekeepers. The upshot was that, with some specific exceptions, if you wanted to get money out of the country without resorting to a suitcase, it needed a request to the tax authority and, regularly, a long wait. 1993 was before the dotcoms and real estate tycoons lit up Israel’s economy internationally, so the parochial 34/93 was a bearable nuisance. There were two ‘get out of jail free’ cards – the special company (annex 1) which allowed largish companies to handle their own foreign withholding tax, and Certified Public Accountants, who could authorize many types of payment. The trouble was – and the reason special company status was used sparingly, and any sane Certified Public Accountant said ‘thanks, but no thanks’ – was that the responsibility for getting the withholding tax right rested on the payor – if the foreigner in some greasy foreign land did the unthinkable of lying, the noose was round the Israeli’s neck.
Fast forward a quarter of a century and 34/93 is still there. A small, but convincing, international economic superpower has to grapple with a system devised by those who dodged the comet that wiped out the dinosaurs. To add insult to injury, the authorities can’t even hide behind the bureaucratic safe harbor of ‘we are just renewing it’, since this year they reconfirmed an earlier change (I suppose we should be impressed that they managed to find a copy of the original instruction – it isn’t on the tax authority’s website). Whereas payments to a foreign resident for services provided abroad (the absolute ‘what the hell do I have to ask permission for this?’ payment) used to be permitted up to $60,000 without the need for approval, the sum was raised to $250,000 a few years back. ‘Not bad, what is he complaining about?’ I hear you mutter. What many companies and banks miss is that the sum is the total of all payments a specific company can make in the year for services abroad. From personal experience, that is about as daft as the original $60,000.
The sane approach, that many of us have been advocating for years, is for the recipient to be required to fill in a form with their details and their claim for treaty benefits etc. The onus would be on them to tell the truth. In the modern world, if they were found to have made a fraudulent statement, the authorities could claim the additional tax and penalties through future payments, or make contact with the tax authority in the recipient’s country of residence.
Of course it is not all bad news in the Start Up Nation. Around two years after the Instruction was issued, I was asked to lecture a group of bank clerks on the rules. Around five minutes into my talk, there were fireworks. ‘If we do that, the customers will just trundle off to the bank down the road.’ End of lecture. I spent the rest of the half hour listening to what they actually did. Fascinating.
Happy New Year (God preserve us).