Lessons from the Pandemic: Towards new principles for tax residence of individuals and corporations

November 29, 2022

Where is your tax residence? A major concern for wealthy families is to navigate residence and mobility. With families running businesses in multiple jurisdictions, children being educated in foreign countries and people spending time in different countries in a given year, the question arises : Where is your tax residence? We have examinded the rules of 5 different jurisdicionts: Germany, Israel, Italy, Spain and the Netherlands. A discussion followed about the various preferential tax regimes in Europe and in Israel (Aliya regime, Beckham law, impatriate etc.) and their potential future. In addition, we discussed challenges of relocation in light of exit tax, continued income tax liability despite departure, step up of assets, inheriance and gift tax implications in Germany, Italy, Israel, Spain and the Netherlands. At the STEP Europe Conference in Luxembourg we also discussed the impact on family businesses if one or more family members do relocate.

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DAC6 & Proposed Unshell Directive at the STEP Israel Conference

October 18, 2022

At the Annual STEP Israel Conference, I have been the moderator for a panel, where we discussed DAC6 (Directive of Administrative Cooperation volume 6) and the proposed Unshell Directive. DAC6 is an additional tax transparency initiative implemented as EU Directive in 2018, which calls for a mandatory disclosure of reportable cross-border tax arrangements by “intermediaries”, so called “gate-keepers” including law firms, accountants, and auditors.  With “Unshell” a proposed EU-Directive, published December 2021, the EU- Commission wants to tackle the use of “Shell-entities”, so called letter-box entities, “Briefkastengesellschaften” in the European Union.  In the proposed draft the European Commission lays down a “new substance test” subject to exchange of information for entities in the European Union. Lawyers from France, Italy and Germany discussed these two initiatives with me.

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German Tax Residence

October 13, 2022

German Tax Residence can be established quite easily. You establish German Tax Residence either when your “home” is  in Germany or your habitual abode/stay is in Germany. In order to estalish a home in Germany it is not important whether you have your centre of vital interests in Germany and there is no minimum day requirement.

Be carefuld not to establish unintended Tax residency with German income and inheritance/gift tax consequences.

Read more>http://law-intax.com/wp-content/uploads/2022/10/German-Tax-Residency-5.pptx

Proposed New Profit Allocation and Global Minimum Tax: OECD Agreement on the Two Pillar Solution and the Effect on Israel

August 19, 2021

A historic global statement has been signed by 132 members of the OECD Inclusion Framework (including Israel) which intends to bring fairness and stability to the international corporate tax framework and will lead to a complete reform of the international corporate tax system. The proposed reform is based on a Two Pillar Solution developed by the Inclusive Framework to address tax challenges arising from the digitalization of the economy. Pillar One of the proposal provides new nexus rules for the allocation of profits of a Multinational Enterprise (MNE) to countries where MNEs do business and where products and services are used and/ or consumed without having a physical presence.  Pillar Two provides for a global minimum effective tax rate of at least 15 % for MNEs which will help to curb aggressive tax planning and stop the corporate tax “race to the bottom”.

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Trust Distributions – A View from Israel

April 23, 2021

Dr Judith Taic gave a presentation about taxation of trusts in Israel at the STEP South Africa
Virtual Conference, 21 April 2021.
One of the basic principles of taxation of trusts in Israel is that the tax liability depends on
the residency of the settlor and/or beneficiary. In contrast to most other jurisdictions, the
residency of the trustee or the place of control and management of the trust are irrelevant.
Furthermore, the tax status of a trust in Israel depends on the classification of the trust
according to the Israeli Income Tax Ordinance. There are 5 different types of trusts. The tax
rate for trusts is the rate applicable to individuals. The trustee, whether local or foreign, is in
general liable for filing the proper documentation and the tax return for the trust.
For more: Presentation at the STEP South Africa Virtual Conference, April 2021

Comparison between “Trusts” under Common Law and Civil Law

April 20, 2021

Is there something like a “Common Law Trust” in the Civil Law System?

Probably not, because trusts are developed in the middles ages at the time of the Crusaders and are a product of the different court systems of law and equity in England. However, the Civil Law System has its own “trust product”: Foundations, and to some degree Liechtenstein Establishments. What are the characteristics of a Foundation and Establishment, how are they formed and what are the main differences from a Common Law Trust?

For further information: My presentation at the Israeli Bar Association, April 19, 2021>

Matrimonial Property Regime, Divorce & Trusts

April 7, 2021

I had the honour to be one of the moderators at the STEP Israel Branch Webinar on the subject “Matrimonial Property Regime, Divorce & Trust”.

We examined with five experts from Israel, UK, USA, France and Germany the different matrimonial property regimes, what assets are considered marital assets, whether marital assets can be freely transferred during marriage and how they will be divided upon divorce. We stressed the importance of the conclusions of prenups especially in case of a relocation of the couple. Finally we explored the questions how assets held in a trust are to be treated in divorce proceedings in the different jurisdictions and whether there is something like a “divorce proof trust”.

 

The original invitation>

From an Israeli Perspective – Implications on Tax Residency of Individuals and Corporations in the Current Health Crisis

November 9, 2020

COVID 19 and the unprecedented measures such as travel restrictions and quarantine requirements imposed globally by governments, including Israel, to control the spread of Corona have disrupted travel plans of individuals.

Individuals are not able anymore to freely move between countries, and sometimes have difficulty to leave and return to their home country.

This has raised a series of international tax questions on residency of individuals, on residency of corporations, the establishment of permanent establishments and the allocation of taxing rights between jurisdictions.

For example the prolonged stay of a person in Israel might expose that person to the claim that he/she has become a resident of Israel and therefore his/her entire worldwide income is subject to tax in Israel. A prolonged stay also might have an impact on the allocation of taxing rights with respect to mixed income of new immigrants.

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Proposal for Tightening German Exit – Summary

August 1, 2020

In December 2019 the Federal Ministry of Finance published a draft bill for a law       implementing the Anti-Tax Avoidance Directive (ATAD-Umsetzungsgesetz).

This draft bill by the Federal Ministry of Finance contains among other topics the implementation of Art.9 and 9b of the Directive with respect to hybrid structures, a reform of the German CFC rules (Section 7ff German Foreign Tax Code), new rules about transfer pricing and, the subject of that Newsletter a drastic reform of the German exit tax (Section 6 of German Foreign Tax Code).

In summary, under the current concept of German exit tax a German resident taxpayer who is subject to tax on his worldwide income in Germany and who moves to another country is deemed to sell his shares in a corporation upon departure and is subject to exit tax. However, in case the taxpayer moves to another EU/EEA country he receives under the current law an unlimited, interest free and unsecured deferral of the exit tax payable, as long as he continued to hold the shares. In case of a departure to another non EU/EEA country the exit tax becomes due immediately.

According to the proposed draft by the German Federal Ministry of Finance  there will be no longer any deferment possible but the calculated exit tax has to be paid in annual equal installments over 7 years without any differentiation whether the taxpayer moves to a EU/EEA state or to a non EU/EEA country.

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Important Court Decision on the Taxation of Trusts in Israel

August 28, 2019

In July 2019 the District Court in Tel Aviv handed down a decision rejecting the Israel Tax Authority’s position on the conveyance of Israeli real estate properties to a trust. The decision contradicts the long-held position of the ITA which has treated the transfer of Israeli real estate into a trust as a taxable event. The recent decision – if upheld by the Supreme Court – will dramatically change the taxation of trusts in Israel.

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Tax Implications & Considerations before the End of the 10 Year Benefit Period

July 16, 2019

As is well known, many individuals made Aliya to Israel or returned to live in Israel after the amendment of the Income Tax Ordinance in 2008. These individuals enjoy tax benefits for their foreign source income for a period of 10 years. Now, for some of these beneficial taxpayers the 10 year benefit period is about to expire and they ask themselves, how to prepare or act before the end of the benefit period. The following newsletter contains some tax implications and considerations.

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Enduring Power of Attorney – Two different approaches – Israel and Germany

June 24, 2019

At the STEP Israel Annual Conference June 2019 I held a presentation about Enduring Power of Attorney, ” ייפוי כוח מתמשך ” . The focus has been on the comparison between the New Israeli Law ( 18. Amendment to the Legal Capacity and Guardianship Law, 2016) and the longstanding German approach with respect to the legal instrument ” Enduring Power of Attorney “.

Presentation>

Blockchain, Cryptocurrency, ICOs Challenges and Opportunities

October 15, 2018

 

At the STEP Europe Conference, on October 5th 2018 in Luxembourg, I held a presentation about Blockchain, Cryptocurrencies and ICOs explaining the technology of Blockchain itself, the application of the technology for Cryptocurrencies and Smart Contracts and their application, with Initial Coin Offerings (ICOs) as an example. The presentation also focused on the technical challenges as well as the required regulatory framework in the virtual asset industry.

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 New Guidelines for the Voluntary Disclosure Procedure

March 15, 2018

Following the release of the New Voluntary Disclosure Procedure (VOD) in December 2017 the Israeli Tax Authority published on February 13, 2018 Guidelines as to the implementation of the VOD and thereby give instructions and clarifications as to the manner the VOD is to be processed. The Guidelines contain a very important statement: “Not in all cases taxation on the capital itself”.

To read more about the New Voluntary Disclosure Procedure and the Guidelines >

Israel: Classification of Rental Income as Business Income or Passive Income

February 21, 2018

The Israeli Tax Authority issued a draft circular February 8, 2018 setting out when it will consider rental income of multiple residential units in the future as business income versus passive rental income. The circular is a direct response to the appeal decision in the Biran case.

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Israel: Tax Authority Published New Voluntary Disclosure Procedure – Probably Last Chance

January 1, 2018

On December 12, 2017, the Israeli Tax Authority published a New Voluntary Disclosure Procedure, which will be in force for 2 years (2018-2019). The procedure provides for three different routes: Regular Route, Anonymous Route (in effect for only one year) and Shortened Route.

It seems that this newly published Voluntary Disclosure Procedure gives the taxpayer a last chance to come forward and declare his/her income and assets, before the expected automatic exchange of information (“CRS”) will be implemented.

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Israel: Facilitating the transfer of funds abroad for investment purposes

November 6, 2017

In September 2017 the Israeli Tax Authority published a press release according to which the process of transferring funds from Israel to foreign recipients for investment purposes will be easier and quicker. The sole signed declaration by the transferor of the funds might be sufficient. How and under what conditions?

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Tax Residence of an Individual – New Israeli Supreme Court Decision

August 1, 2017

A new Supreme Court decision (Unknown v. Ashkelon Income Tax Assessor Officer – 22.07.2017) deals with the question of the residence of an individual and the issues relating to the determination of the “centre of life” of an individual. This Supreme Court ruling may have a significant implication on the determination of an individual’s tax residence under Israeli tax law.

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Germany: New Tax Loss Carryforward Regime

May 3, 2017

In December 2016 the German Bundestag and the German Bundesrat have approved the new Sec. 8 d CITA (German Corporate Income Tax Act) according to which the present restrictions for the use of tax loss carryforwards have been substantially improved. The primary goal for the new Sec. 8d CITA is certainly to protect young innovative enterprises from the negative consequences of the often necessary change of shareholders.

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Deutschland: Neue Zinsschranke und vorgeschlagene Lizenzschranke

April 15, 2017

Im Dezember 2016 wurde der neue § 4i in das deutsche Einkommenssteuergesetz (EStG) eingeführt mit dem Ziel einen doppelten Betriebsausgabenabzug im Zusammenhang mit einer Beteiligung an einer Personengesellschaft in Deutschland und einem anderen Staat zu verhindern. Zusätzlich wurde im Januar 2017 ein Gesetzesentwurf eingereicht, der in Form eines neuen § 4 j EStG die Abzugsfähigkeit von Aufwendungen für die Gewährung von Lizenzen an nahestehende Personen erheblich einschränken soll.

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Effective as of January 1, 2017: Significant Changes in Israeli Tax Law

January 15, 2017

With effect as of January 1, 2017 there are some significant changes in the field of Israeli taxation, which will have an influence for individuals, trusts and corporations. The Israeli corporate tax rate is reduced to 24 % as of January 1, 2017, whereas the surtax levied on high income individuals is increased to 3 % from 2 %. In addition there are some significant provisions enacted with respect to the taxation of cash withdrawals or the use of corporate assets by substantive shareholders. Furthermore, the new law contains a provision for the taxation pertaining to so called “wallet companies”, companies owned by individuals who provide services, and finally a beneficial temporary order with a reduced tax rate for dividend distributions, which will be made until September 30, 2017.

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Israeli Taxation of Foreign Digital Companies

September 7, 2016

In April 2016 the Israeli Tax Authority (ITA) has published a Circular addressing the Israeli taxation of non-resident companies selling goods or providing services through the Internet to Israeli customers. The Circular covers the corporate income tax liability as well as the VAT-liability of these digital companies. It should be emphasized that the Circular represents the ITA’s interpretation of the law and has not a legal binding effect for the courts.

Read more>  The full article by Dr. Judith Taic has been published in Internationales Steuerrecht IStR 15/16  (IfA)

Recent Changes in the Israeli Tax Law – Double Taxation Agreement effective in 2017

August 2, 2016

There are again some changes and new developments in the Israeli tax law in the fight against tax evasion. Thus, the Israeli Money Laundering Law has been changed in April 2016 and certain tax offences are treated as predicate offences under the Money Laundering Law. As a direct response to this amendment, the Israeli Tax Authority (ITA) has extended the Temporary Voluntary Disclosure of 2014 again until 31 December 2016. In the area of the global exchange of information, Israel has signed in May 2016 the Multilateral Competent Authority Agreement (MCAA). Finally, the new double tax treaty for the avoidance of double taxation between Germany and Israel, signed in August 2014, will be effective as of January 1, 2017.

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Common Law Trusts and Prenuptial Agreements as asset protection – A German View

June 15, 2016

Presented by Dr Judith Taic,

STEP Israel – Annual Conference – June 2016

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