Israel Seeks Public Comments on Imposing VAT on Digital Services

The proposed law is intended to allow efficient collection of the tax, starting with the purchase of electronic products and services, communications services, radio and television broadcasts, from international suppliers who are not domiciled in Israel.

The collection of tax applicable to these services and goods is essential, both for the purpose of enforcing the payment of real tax and increasing state revenues from taxes and for the purpose of preventing discrimination against Israeli businesses that provide their customers with similar services and goods, under full tax burden.

The difficulty of collecting taxes on services provided by providers whose location is not in the country of residence of the service consumers has been the subject of widespread international debate in recent years. The proposed measures in this law memorandum have been implemented in many countries and have even been included in the recommendations of the OECD Organization’s Base Erosion and Profit Shifting (BEPS) project, which were published in October 2015 (hereinafter – the BEPS recommendations ).

In the current legal situation, the payment of VAT due to the receipt of services by a foreign resident who is not required to register under section 60 of the Value Added Tax Law, 5736-1975, applies to the recipient of the service – whether the recipient of the service is classified as a taxpayer or an individual. . However, as discussed extensively in OECD reviews, there is great difficulty in collecting VAT from private individuals, as opposed to businesses.

As stated in OECD reviews, one of the main objectives in regulating VAT charges in cases where each of the parties to the transaction is domiciled in two different countries, is to avoid a situation of double taxation, or alternatively – lack of tax liability. This principle guides the proposed amendment below.