Tax Authority: Facebook and Google Will Pay Taxes in Israel

The Israel Tax Authority (ITA) aims to charge multinational internet giants between 3% and 5% on the turnover.

The Israel Tax Authority (ITA) has submitted a new tax plan to present to the incoming finance minister. The pan is taxing of the multi-national Internet companies operating in Israel, including media giant Google and Facebook.

The ambitious tax plan is already taking shape, in parallel with the global trend of taxing turnover on international Internet companies. It seems that Israel adapts the French bill on the matter, which is due to go up in France in May.

The change in legislation has been examined for some time, and once a new finance minister is appointed, the matter will be discussed and an orderly plan will be formulated. The aim is to charge between 3% and 5% tax on the turnover of these companies.

Internet companies do not pay taxes on their activities in many countries since they do not have offices and physical business activity within their borders.

In 2018, the European Union undertook to impose a 3% turnover tax on international Internet companies with a sales turnover exceeding € 750 million, with sales exceeding € 50 million. Such legislation, if passed, would affect mainly Google, Amazon, Facebook and Apple.

The tax on turnover means that Internet companies – most are American – will start paying taxes in Europe for the first time, depending on the volume of their services. However, the legislation did not pass, as not all EU countries agreed to it.

Meanwhile, some countries have decided to stop waiting and promote private legislation on the issue. Thus, in France, legislation was recently enacted in the framework of which a tax rate of 2% -5% of the sales turnover of multinational Internet companies will be imposed. Under the framework of the program in France, the idea arose to make the tax in question tax indirect, so that the ability to plan tax, deduction and the like will be reduced.

Now, Israel too is considering advancing legislation similar to that of France, after it became clear that the Internet companies are making it difficult for the Tax Authority to deal with their tax assessments.

In recent years, the internet companies have been discussing an assessment with the Tax Authority, which requires a tax on their operations in Israel, based on the new interpretation published in April 2017.

It was then decided – in a final and official manner – that under certain conditions, the foreign internet companies that maintain significant business activity in Israel and provide services to customers in Israel – including advertising services, file downloads, customer promotion on internet sites and more.

The new circular repeats a new tax rate of 25% on the income of the foreign companies that meet the conditions stipulated therein. The large companies, including Google, have been subject to tax assessments that require tax, with companies trying to eliminate or at least reduce their tax requirements.

While these discussions are continuing, the Tax Authority is seeking to “simplify” the manner of collecting the tax and to prevent tax planning and evasion of payment by the multinational Internet companies.

According to estimates, if the legislation passes, the tax payable by the companies will amount to hundreds of millions of dollars. In the optimistic scenario revenues from the tax on turnover may reach NIS 1 billion ($360 million).

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