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Mar 14, 2019

Client Update | The Submission Date for the Reporting of Tax Positions as Required by the VAT and Customs Authorities for the 2018 Tax Year

Dear Clients, Colleagues and Friends,

We are writing to inform you regarding a notice published by the Israeli Tax Authority (ITA) concerning the postponement of the submission date for the reporting of tax positions to the VAT and Customs Authorities, which require reporting for the 2018 tax year.

According to the VAT Law and the Customs Ordinance, the reporting of a tax position that is opposed to one of the tax positions included in the list published by the ITA, is required to be reported within 60 days from the end of the tax year in which the opposing position was taken. However, according to the notice recently published by the ITA, the submission deadline date for the tax year of 2018 has now been postponed to the earlier of September 1, 2019 or the submission date of the annual report for the 2018 tax year.

As a reminder, opposed to an income tax related position, which must be reported in the yearly tax return, in the case of VAT and import taxes (Customs, Purchase tax and VAT on imports), the reporting of the tax positions must be submitted online via the ITA's website, using the forms published by the ITA. Links to the forms are attached below for your convenience.

Which Tax positions require reporting?

This would be a tax position, opposed to one of the tax positions published by the ITA, that requires reporting, and in respect of which the tax benefit derived from it is greater than NIS 2 million per year, or NIS 5 million over a four year period.

It is important to note that although in 2018, the ITA did not publish new positions regarding VAT and Customs, the obligation to report for the 2018 tax year, applies with respect to all the positions regarding VAT and Customs published in previous years by the ITA.

The tax positions which were published regarding VAT, concern the deduction by holding companies of input tax; importing services from abroad (which is also relevant to a financial institution); and the leasing of a dwelling unit by a company. Additional positions, which require reporting, cover zero rate VAT with regard to services, that are included in the value of the goods for customs purposes; the VAT obligation with regard to a VAT Dealer's receipt as a result of a tortious event; the cessation of a contract or a delay in payment; the significance arising from the cancellation of a discount; the application of Section 31(4) of the VAT Law; and the VAT aspects of remuneration which are determined to constitute fees payable to  the agent in a representative action. It should be noted that position No. 12/2017 regarding an activity with business characteristics in the financial markets, was deleted from the ITA’s 2017 annual report and thereafter.

The tax positions published regarding import taxes concern the value of items for customs purposes, (this encompasses advertising expenses, distribution costs, warranties and discounts, transportation, royalties and services, the costs of molds used in product manufacturing and payments to third parties). In addition, tax positions have been published regarding the classification of goods (motorcycles, ethanol and other denaturized alcohol, the classification of cigarettes and cigars, ABS systems and replacements, eyeglasses frames and packaged contact lenses, rods, aluminum profiles, milk based powder with maltodextrin, the addition of "sodium casinate" to dried milk, milk based powders and dried dates). A tax position has also been published regarding an exemption for alcohol, which is used to produce wine, subject to the wine complying with the applicable Standard’s requirements.

The obligation to submit the report does not apply to a Public Institution, a non-profit organization, and a VAT Dealer, the turnover of which does not exceed NIS 3 Million.

For your convenience, please find below links to the lists of the tax positions, which require reporting regarding Import taxes and VAT for the 2018 tax year, as well as the relevant reporting forms.

For a list of the Tax positions which require reporting regarding Import taxes: click here

For a list of the Tax positions which require reporting regarding VAT: click here

For import taxes reporting form: click here

For VAT reporting form: click here

We will be happy to provide legal advice regarding the situation where a tax position, which requires reporting, should be taken, and in general, regarding any issue arising from the submission of the report, and of course to answer any questions you may have on this matter.

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