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Anti-avoidance framework

Regulation

What legislative and regulatory initiatives has the government taken to combat tax avoidance in your jurisdiction?

There are regulations listing certain transactions requiring disclosure in an annual tax return. Recently, the Israeli Tax Authorities (ITA) identified a comprehensive list of tax positions requiring disclosure in an annex to the annual tax return if certain tax-saving thresholds are reached by utilising these positions. Finally, certain tax opinions also require disclosure in an annex to the tax return. These extended reporting requirements allow the ITA to identify and scrutinise tax avoidance structures.

To what extent does your jurisdiction follow the OECD Action Plan on Base Erosion and Profit Shifting?

Audits are already taking base erosion and profit shifting recommendations into consideration, although the essence of the recommendations has long been the standard for enforcement in Israel in terms of transfer pricing audits. Country-by-country and master file are awaiting formal ratification by the Israeli parliament.

Is there a legal distinction between aggressive tax planning and tax avoidance?

As a general rule, Section 86 of the Income Tax Ordinance contains a general anti-avoidance provision which allows the tax assessment officer to disregard a transaction deemed artificial or fictitious, or one whose principal objective is improper avoidance or reduction of tax.

In addition, even in the absence of express statutory provisions, the ‘substance over form’ doctrine is a generally accepted principle of Israeli case law.

Regulations have also been promulgated under the Income Tax Ordinance which impose a disclosure requirement with respect to certain defined categories of transaction. In addition, the ITA recently published a comprehensive list of "reportable tax positions". If a taxpayer takes a position that contradicts the reportable tax position, thus creating a tax saving of more than NIS5 million (or NIS10 million over four years), it should be specifically reported on a separate form.

Penalties

What penalties are imposed for non-compliance with anti-avoidance provisions?

Certain listed transactions and reportable positions require disclosure under Israeli law and failure to disclose such transactions and positions gives rise to fines amounting to 30% of the deficit amount, in addition to standard applicable fines and financial sanctions that may be imposed in accordance with the Income Tax Ordinance.

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