Conrtibuted by Artzi, Hiba, Elmekiesse, Cohen - Tax Solutions Ltd., Israel
In these frenzied days, most of the citizens of the country are under curfew in their homes, following directives or recommendations that have been issued by the Ministry of Health. Furthermore and in light of the circumstances, most business people are now located within the borders of the State of Israel, even though in normal circumstances they are in the habit of staying out of the country for business purposes, whether this be because of the "closing of the borders" and whether because of taking the need to self-quarantine in Israel or abroad, when moving between countries, into account. This applies, inter alia, to foreign residents who have come to Israel and have been forced to stay here "until the storm has passed". On a broader scale, global economic activity in general, and economic activity in particular have been reduced to the minimum that is necessary in many cases and in certain cases it has even been halted completely.
The question that needs to be asks is how these circumstances may affect questions regarding the residence of an individual in certain cases, the tests for control and management, which are relevant to a company's residency status, the way in which the calculation of the place where income is produced is performed, including the existence of a permanent institution or the clarification of the Israeli part of "mixed income", which a new immigrant or a returning veteran resident has, and other issues.
In our opinion, there is room for giving consideration to the publication of general guidance, even of it is subject to the specific circumstances in each individual case, that the current period ("The Corona period") should be eliminated when considering the impact of the aspects that are mentioned above, whether this be in relation to people who have been required to stay in Israel because of the situation and whether in relation to those who have become "stuck" outside of Israel.
The residency of an individual
1. The presumption of days for the determination or residency:
The provisions of the Income Tax Ordinance in Israel (hereinafter: "The ITO") determine that there is a positive presumption of Israeli residency, pursuant to which staying for 183 days in a tax year, or a cumulative stay of 425 days in three years ending in the tax year, constitutes a presumption of such residency in Israel. This presumption can be contradicted by the assessee or by the assessing officer. It is obvious that the Corona period may move the scales unjustly in the direction of residence in Israel in many cases.
The provisions of the ITO also determine a positive presumption in relation to foreign residency, pursuant to which staying for 183 days outside of Israel in two consecutive years and the existence of a center of life a life abroad in two consecutive years constitutes a presumption of such foreign residency, as from the first tax year. This presumption is not contradictable. In this case too, because of the Corona period, a different conclusion may be determined that the conclusion that might have been determined in regular times.
The elimination of the Corona period will balance the equation in this connection, both in relation to residency in Israel and also in relation for foreign residency.
2. Days in a stay as part of the clarification of the center of life:
For all matters relating to the center of life (which is the main test for the examination of residency), the issues need to be examined at an objective level, however, consideration should also be given to the assessee's subjective intention. Thus, insofar as the circumstances of the case indicate a temporary enforced stay by the assessee in Israel (or abroad), then we should try to eliminate that impact insofar as is possible, or it should be given lower weighting in the examination of the center of life.
The following are a number of aspect that are connected to the aforesaid:
- In tax rulings, which have been given by the Israeli Tax Authority (hereinafter: "ITA") in connection with residency, the days in which the individual stayed in order to nurse a close family member have been eliminated, because of the fact that there has been an external constraint. Therefore, in our opinion, an assessee's enforced stay for medical reasons and/or because of legal directives should also be eliminated.
- There are tax rulings in which employees in a relocation or other individuals have committed to a maximum period of staying in Israel (between 75 and 90 days) as part of the terms of the decision, in order to be considered to be foreign residents. Furthermore, there are decisions going in the opposite direction, which require a minimal number of days stayed in Israel (142 days) for the purpose or receiving confirmation of residency for tax purposes, for example. It is obvious that an unwilling stay in Israel, or abroad, in the Corona period, may cause the breach of these tax decisions.
- The regulations that have been promulgated under the ITO, enable the elimination of a period of medical hospitalization in Israel, or a period of sickness in Israel, when counting the days stayed for the purpose of testing the center of life. Albeit the Corona period is not "hospitalization" within the literal meaning of the term, and it does not constitute "a sickness" (except for those who are really unlucky), however the rationale that lies behind the elimination this period is of course also relevant to the Corona period.