Israel Tax Authority just shared its clear intention that once a new minister of finance takes office, the Digital Services Tax matter would be quickly raised on the top of the agenda and a detailed plan formulated. Not much information has been shared other than their initial idea is a 3-5% tax rate charged on these companies’ digital in scope turnover.
The information available indicates that the EU Directive will be a close to follow guidance and the French current advanced law draft will be of strong influence and inspiration for local regulators.
Let’s remember that Israel was one of the earlier countries to set focus on Digital PE types, publishing the 04/2016 Circular addressing Corporate Tax and also VAT PE aspects of a foreign company with significant digital presence.
In theory, when those digital companies are conducting substantial business activity in Israel and providing services to customers in Israel, the circular in practice imposed a 25% tax on the income and also the obligation for VAT registration in some cases.
This has been generating relevant friction with foreign Digital giants, and it is to be seen if an approach that modifies and alters the treaty based in force PE definitions can be validly supported. If a digital services tax is added to the equation, tax landscape will be burdensome and not easy to navigate for foreign digital players in Israel.
All, at a moment when their own Startup ecosystem is really booming and fueled by fresh capital, scientific resources and Government support. Is it a coincidence ?