The exits move to Bar Raphaeli's precedent: All the dramatic decisions that have rocked the tax world this year

Taxes and dramatic tax collection decisions were made in 2019, changing start-up laws, real estate companies and dual citizenship • Globes appealed to leading tax experts to make new rules of the game and select the 5 judgments and decisions to shape Our life soon

In recent years, the tax world has become increasingly dominant in Israeli and international realities. Public awareness of the Ministry of Finance's tax policy and the tax authority's activities has increased, and in the past year, towards a particularly intense decade in the tax world, it has also reached a new high, during which the tax authority felt in prominent Israeli public affairs.

The major provisions in which the tax authority took part reflect changes that have taken place over the last decade at the international level, with the strengthening of cooperation between countries to combat the phenomenon of black capital and tax evasion. The changes also reflect processes that have taken place at the national level, with the significant leap taken by the Israeli tax authority at the level of enforcement and collection. All of these changes are affecting the public's pocket, in the bottom line.

In the past year, the Tax Authority has trapped more tax evaders, but on the other hand lost significant arenas including the Exit Taxation scene and the Urban Renewal Taxation arena.

So what has been the most significant change this year? What has the public received or lost following changes in the tax world? What is the important ruling of 2019? Top tax experts summed up for Globes the most dramatic changes to the tax year.
1. The intermediate victory of the exits

Let's start from the end - the latest upheaval in Tel Aviv District Court two weeks ago in the world of exiting taxation.

In a new ruling dealing with the long-standing dispute between the tax authority and startups about "changing a business model" during exits, the court made clear that not every transaction that is perceived as artificial by the tax authority is such an practice. In the Broadcom ruling, a message was sent to the tax authority that today's exits in the world also accept different purchase models from those accepted by the tax authorities, and not all of them would be considered a "business model change" that justifies taxation.

Although the ruling is expected to come before the Supreme Court, tax experts are in agreement that this is a real revolution. Thus, according to attorney Boaz Finberg, director of the tax department at ZAG-S&W, "Broadcom's ruling is significant for two reasons: First, at the macro level, it's finally refreshing to see the court get a tax appeal. Obviously, it is not statistically possible to know really how many cases that started as an appeal end in their rejection - since many of them are closed in a compromise arrangement rather than a judgment - but apparently, the results of the judgments also seemed a little less homogeneous.

"To the ruling, the tax authority considered it permitted to view any transaction between related parties that results in a change in a business model, as an artificial transaction under which assets and activities are actually transferred from one company to another. The Broadcom court has stuck a significant wedge in this approach, stating that not every transaction where there is a change Of a business model in a group of companies will inevitably mean that there is a transfer of activity and risk, especially when the original company remains a business activity. No doubt this issue will continue to employ mainly the high-tech companies that plan on exiting. "

Adv. And Accountant Daniel Fasserman, Head of Taxes at Gornitzky & Co., adds: "This is one of the hottest issues in the tax field, especially in the area of ​​transactions and transfer prices. There are dozens of assessments that the tax authority has spent in the hundreds of millions of dollars following mergers and acquisitions where groups International companies have acquired Israeli companies, especially in technology, with the tax authority claiming that these Israeli companies have sold all their assets and activities to the international group, including their intellectual property, and Broadcom is critical in this area, and one of the most important in the field of taxation in recent decades, with Hon. Changing a business model brings to mind The ruling will be classified into the Israeli high-tech industries. "

Until the appeal, if anything, it was an interim victory for the exits.
2. Celebration of transparency and exchange of information

The international struggle for black capital and the shadow economy has undergone dramatic changes in recent years after global regulators declared a fierce war on tax evaders and money launderers. Against this backdrop, a host of initiatives and information exchange agreements were born between the states, and Israel takes an active part in the Transparency and Information Exchange Revolution.

During 2019, transparency rose significantly with the entry into force of the CRS agreement, which stipulates automatic exchange of information between Israel and dozens of countries in Europe and other countries. According to Adv. Doron Peso, a tax expert from Adv. Doron, Tikotsky, Cantor, Gutman, Ness, Amit Gross & Co., this is a major event. According to him, "The CRS standard is intended to collect and exchange information between countries on foreign-owned bank accounts for the purpose of taxing these accounts. Accordingly, the regulations require Israeli banks to find out about account holders for whom there is a suspicion or knowledge that they are not residents of Israel, and transmit this information to the Authority. The taxes, which in turn transfer it to the resident states of the account holders.

"At the same time, the tax authority is receiving similar information from foreign countries about Israelis holding overseas accounts, and criminal and civil enforcement measures have already begun to be taken against Israelis who hid their income in overseas accounts."

Attorney Ziv Sharon, co-founder of Ziv Sharon & Co. adds, "The move is considered to be very significant, as the state ceases to depend on the taxpayers' willingness to disclose their income from abroad. This should have a significant impact on the state's tax revenue."

The information obtained following the CRS joins the information obtained on Israeli financial assets in the US under the FATCA agreement. All this is added by the fact that at the beginning of the year, an anonymous voluntary disclosure procedure was allowed that allowed Israelis to disclose their hidden anonymity and pay tax without fear of criminal proceedings .

According to Attorney Rani Schwartz, a partner in Yaron-Elder's office, Fleur, Schwartz & Co., "Voluntary disclosure has also played a major role this year, due to the culture of reporting and actions taken by the tax authority against Israeli residents holding unreported bank accounts, and the existing procedure is expected To be completed by the end of this year. "
3. Revolution in the field of home tax

The real estate taxation scene has seen dramatic changes this year, once in favor of the Tax Authority and once against it. "Real estate taxation has undergone a real revolution this year in the area of ​​tax exemption for the sale of residential apartments," explains attorney Ziv Sharon. "While in the past, the building permit was not a condition for receiving the exemption, last year the district court ruled in two judgments - David Guy and Shinel Stein - Because it is not enough that the apartment has been used for residential purposes for years, but that the condition for granting the exemption will be the existence of a residential building permit, and in its absence will examine the good faith of the owner in relation to the use made of the apartment in order to "not leave a sinner rented."

The court also discussed this year the transfer of rights in an urban renewal project between entrepreneurs before granting a construction permit project, stating that, prior to the perfecting of the preconditions (prerequisites) for the transaction and the entry into force of the agreement between the developer and the landowners, the entrepreneur does not have a right to real estate and therefore does not constitute an exchange or combination of entrepreneurs A tax event in real estate tax (Iwega case law).

"The tax authority has not appealed the ruling to the Supreme Court and yet the various tax offices refuse to act according to the ruling, although they are willing to set a lower transaction value than they would before the ruling," says attorney Ziv Sharon.

Attorney Rani Schwartz also adds to the list of significant changes, "PassD Glace," which states that a property can be transferred to a trust that is not incidental to a sale event without being considered a tax event. According to him, "This is a precedent decision by the Tel Aviv Appeals Committee, which will soon be reviewed by the Supreme Court following an appeal filed by the state. The key innovation in the ruling is that a property can be transferred (not sold) without being considered a real estate transaction. The property goes out of the owner's possession and is held by the trust until it is transferred to the beneficiary of the trust. The novelty of the judgment is that the provisions of the Income Tax Ordinance, in relation to the transfer of assets to the trust, also apply to real estate transfer and are not considered a transaction for real estate tax purposes. "

Attorney and Accountant, Liat Neuvirt, Partner and Head of VAT in the Goldfarb Seligman Tax Department, adds that in the past year there have been more and more collaborations between the PA's branches, and this is also reflected in the field of real estate taxation. Real estate transfers lists of individuals who made a number of real estate transactions for their classification as 'authorized dealers'. Recently, a district court ruling in which the tax assessor Amiel Levy was classified as 'real estate dealer' for conducting five real estate transactions within four For two years, in two real estate assets, this issue was also discussed in the Supreme Court - in the case of Gipstein - and there was also no claim that a transaction was made Real estate property that is inherited is a private plane. It seems that this trend will continue in 2020 even more. "
4. The injury to companies operating abroad

Another dramatic change in the taxation that took place this year, according to the experts, "a painful blow" to Israelis operating abroad. This, after the Supreme Court overturned a district court ruling - in Rosbad - where it was determined that under certain circumstances the activity of a group of companies abroad as a whole should be examined. The Supreme Court did not state this, and each company should be examined separately.

According to Attorney Rani Schwartz, "the Rosbad and Supreme Court judgments in the districts dealing with various holding companies and various holding structures are highly significant to public companies operating in huge financial volumes. Corporate groups are often made up of a structure that includes a holding company that holds the shares of the other companies in which the business operations are conducted. The holding company finances the subsidiary's business activities by raising capital from the public.

"In Rosebud, the district court ruled that the group of companies could be regarded as a single legal entity for tax purposes, while the Supreme Court accepted the state appeal and rejected the thesis proposed in the district court's judgment. A court that granted Roshabad PSD - where it held that the holding company has its own business, investment and financing of subsidiaries, and in this way a similar result was obtained from Rosadabad PSD, as it allows the holding company to offset the financing expenses against the business activity income. . The Addis verdict will also be reviewed by the Supreme Court after an appeal is filed. ”

According to Adv. Paserman, "Rosabad's strike severely harms the activities of Israeli companies abroad and means that Israeli controlling shareholders in foreign companies will be taxed on a regular basis in Israel for profits abroad."
5. Bar Refaeli and the question of residency

Who would have thought that a tax ruling could win this year's intriguing judgment title, but it did, and the title graphed the judgment in the case of Israeli-international model Bar Refaeli. This is a victory of the tax authority in a district court ruling, which states that the model must pay NIS 16 million in income taxes, which she earned from working abroad for about two years, because she was a resident of Israel in those years, and not a U.S. resident. Argument.

"The Bar Refaeli affair is undoubtedly the sexy verdict of the year - both in light of the identity of the taxpayer and since a number of significant decisions have been made regarding the issue of taxation of taxpayers with international business activity," says Adv. Boaz Pinberg. The law is the lack of a practical possibility to claim that one is not a resident of any state. The ability to do so has been reduced to rare and rare cases. "

Rafaeli has already appealed to the Supreme Court for its decision on the matter, and at the same time the controversy surrounding the question of when the Israeli disengages from his citizenship for tax purposes has taken on monstrous proportions. As the Globes recently revealed, the tax authority is working on residency reform, which will further tighten the conditions for severing Israeli residency for tax purposes.

According to attorney Doron Peso, "this is a significant reform planned for 2020 on the issue of residency, which will increase the tax base of Israelis whose residency is in dispute. Today, the Income Tax Ordinance provides for two tests to determine "Israeli residency", which creates a tax liability in Israel - the "presumption of the days" according to which a taxpayer staying for a certain number of days in Israel maintains that he is a resident of Israel, when he can contradict this with the "Center of Life Test", the examiner Where is the center of the taxpayer's family, economic and social life? The proposed reform will stipulate that a resident who stays in Israel for a certain number of days will necessarily be considered a resident of Israel, regardless of the location of his center of life. "

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