What does the courtroom’s determination on aliyah tax reduction imply for you? – opinion

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  What does the court's decision on aliyah tax relief mean for you?  - opinion

The Supreme Court ruled on the amount of Israeli tax vacation Olim (new immigrants) should enjoy for 10 years in relation to foreign income and profits (Yehuda Talmi v Kfar Saba Assessing Officer, Civil Complaint 1779/18, December 2, 2020) Judgment is of particular interest to working elderly and returning seniors who have lived abroad for at least 10 years, particularly in the high-tech sectors. Sometimes the Israeli tax authorities may be a little hesitant about granting the tax vacation, especially when it comes to the refund of tax surpluses that are withheld from olim’s salaries.background: According to § 14 (a) of the Income Tax Ordinance, a new resident or an older returning resident is exempt from tax on income from all sources listed in the tax law that were accrued or derived abroad or originate from assets abroad … Section 97 provides a similar 10-year exemption for 10 years for foreign capital gains. Other sections take precedence over certain avoidance regulations and allow non-disclosure of income and assets abroad during this 10-year period. The court found that the tax vacation was enacted as Amendment 168 of the Income Tax Ordinance with effect from January 1, 2007. to bring qualified personnel into the Israeli economy and to avoid unnecessary tax planning and friction with the tax authorities.Facts about this case::

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if (window.location.pathname.indexOf (“647856”)! = -1) {console.log (“hedva connatix”); document.getElementsByClassName (“divConnatix”)[0].style.display = “none”;} The taxpayer was a senior returnees who worked in Israel as a regional sales manager for a UK company in a multinational group that returned to Israel in 2007 but was traveling abroad on business. The taxpayer rejected an offer based on tax circulars from the ITA to allow a partial exemption for working days abroad. This would have exempted them from tax on 9% to 36% of the total salary in 2007-2011. Initially, the taxpayer claimed to have exempted 64% of his salary by increasing the weight of time spent abroad. Then the taxpayer claimed he was 100% exempt because his salary was related to overseas intangible assets that he had developed before returning to Israel, namely financial techniques and marketing models. The ITA found no mention of such intangible assets in its employment contract. And the ITA visited his place of work in Israel and found that all of his work in Israel had to do with Israeli customers, not customers in any other country he claimed to be serving. Later when the matter went to court, the taxpayer claimed that his employment contract with the UK company itself constituted a foreign asset and entitled him to 100% exemption from his salary from that company.Problems in this case: The main question was whether the 100% exemption from income from foreign assets only applies to investment income or also to income from work performed.Court decision: The Court stated that Israel taxes income based on its source, much like the UK system of income plans. The court ruled that the taxpayer could not prove that the salary was related to assets abroad, only to work. Additionally, the legislative intent of the tax leave was to prevent migration to Israel from triggering additional taxes. In this case, the court ruled that the UK would not tax a resident’s salary earned in Israel. Therefore, the court denied the taxpayer’s request for 100% exemption – his salary related to work performed primarily in Israel, not intangible assets abroad.Remarks: The taxpayer has not proven the facts in his case to the satisfaction of the court. However, the court has clarified some key principles for Olim and returnees during their tax break period. Firstly, the salary for working days abroad can be exempted on a pro rata basis. Second, the passive income from assets abroad in Israel should generally be 100% exempt.Third, the court said that there may be cases where a person receives income from their employer that is derived from intangible assets overseas, not from earned income Labor, for example royalties, in which case property-related (A full exemption may apply even though income is active rather than passive. Such an exemption may apply to stocks and stock options granted to many high-tech workers. The ITA’s stated policy is to deny tax exemption for Olim and returnees, even if they receive a 25% tax rate under Israeli ESOP (Employee Share Ownership) rules. ITA’s policy of denial is controversial and it remains to be seen whether that judgment might change things. In certain cases, as always, contact r early on to experienced tax advisors in each country.leon@h2cat.comThe author is a chartered accountant and tax specialist at Harris Horowiz Consulting & Tax Ltd.