Israel: Proposal to amend the VAT Law for efficient collection of Digital Service taxes
The Israeli government has proposed an amendment to the Value Added Tax Law, 1975, which aims to facilitate the collection of VAT on digital services purchased from international suppliers whose residence is outside of Israel. This amendment is seen as critical for both enforcing the payment of tax and increasing state revenues, as well as preventing discrimination against Israeli businesses that provide similar services and are fully taxed.
Many countries have faced challenges in collecting taxes on services provided by suppliers who are located outside of the consumers’ countries of residence. The measures proposed in this amendment have been implemented in many countries, including being included in the OECD’s Base Erosion and Profit Shifting (BEPS) project recommendations, published in October 2015.
Currently, the payment of VAT for services received from non-residents who are not required to register under Section 60 of the VAT Law is the responsibility of the service recipient, whether they are a taxable entity or a private person. However, there is a significant challenge in collecting VAT from private individuals, as opposed to businesses. Therefore, in line with the BEPS recommendations, the amendment proposes that non-residents providing such services must register in Israel and pay the applicable VAT.
The objective of regulating VAT charges in cases where the parties involved in the transaction are located in two different countries is to prevent double taxation or the absence of tax liability. This amendment aligns with OECD regulations, and it is consistent with this guiding principle. It is important to note that this amendment does not detract from the authority of the Tax Authority to require businesses with operations in Israel to register in the country.
Source: tazkirim.gov.il
