Israeli Tax Liability of a Foreign Company on Foreign Sourced Income (June 3rd, 2008)
1.1The corporation is a fiscal resident of state "A” as
a result of its incorporation and the control and management of its business
thereat. State "A” has entered into a DTT with Israel.
1.2"B”is an individual who owns the entire share capital of the corporation.
1.3According to an opinion signed by an Israeli lawyer, "B”
lost his Israeli fiscal residence in 2006.
1.4The corporation derived its income from a "Special
Vocation” as defined in section 5(5) of the Income Tax Ordinance.
1.5The geographic source of the income derived by the
corporation is outside of Israel.
1.6The corporation does not have a permanent establishment
or a fixed base in Israel and effectively lacks any Israeli presence.
the Special Vocation Income of the corporation liable to Israeli taxation?
3.1.The opinion concluded that on the basis of the legal
opinion that "B” was not a fiscal resident of Israel, the conditions
required in order to regard the corporation as a Foreign Special Vocation
Company, whose Special Vocation Income is subject to Israeli taxation failed to
be met as of 2006 and consequently no Israeli tax was due from the corporation.
3.2.The opinion goes on to provide that even if the
pre-condition had been met (i.e. "B” was an Israeli tax resident) Israel
could not tax the income of the corporation for the sole right to tax it was
reserved under the DTT Between "A” and Israel to "A” and in
accordance with section 196 of the Income Tax Ordinance the provisions of a DTT
take precedence over those of the Ordinance.