The Knesset State Control Committee, chaired by MK Shelly Yachimovich (Zionist Union), on Monday heard the views of the new Tax Authority Director, Eran Yaakov, regarding the State Comptroller’s reports on the exemption given to olim and returning residents from reporting earnings abroad, as well as on the exemptions and benefits that are granted venture capital funds.
Yaakov said his position on the exemption for new immigrants and returning Israelis, dubbed the “Milchan Act,” after Israeli billionaire Arnon Milchan for whom the law was supposedly tailored, is “clear and unequivocal: the exemption from reporting earnings given to new immigrants and returning residents should be annulled immediately. If we do not have the information, I can’t know how many of them (new immigrants and returning residents) have been granted the exemption, or since when, or how much we have lost. I can’t even demand this information.”
MK Yachimovich said, “Roman Abramovich immigrated to Israel in May this year. His fortune is estimated at $10 billion. It is possible that we will not see a shekel from him. I can’t understand how the Tax Authority’s professional position can be so decisive and yet the cancellation of this corrupt law is thwarted time and again. Who’s thwarting this?”
“This law is relevant to only a thin layer of very wealthy people,” MK Yachimovich added. “It does not contribute anything to the average immigrants, regular people who work as security guards in the mall, or as nurses in hospitals. If we do not cancel the law entirely, we should at least reinstate the duty to report earnings abroad. We, as a committee, will formally approach the Prime Minister, Finance Minister and the Minister of Immigration and Absorption and ask about the delay.”
Freida Yisraeli, deputy chief economist at the Finance Ministry, supported the Tax Authority’s position. “We’ve always been against the exemption from reporting earnings,” she said. “We have received severe warnings from the OECD and the World Bank. They were given assurances that these deficiencies would be corrected, and a few have been corrected, but not this exemption for new immigrants. We have been unable to reach an agreement with the Absorption Ministry.”
Law Professor Yoseph Edrey, an expert on fiscal policy and tax legislation, said “the OECD will simply throw us out one day. We constantly receive signals from [the OECD], but no one is doing anything about it. You want to encourage Aliyah? Help other new immigrants, not the extremely rich ones, come [to Israel].”
In 2003, Israel’s income tax laws were modified to tax Israeli citizens for all their income worldwide. The same new legislation allowed olim and returning Israelis an exemption from reporting and paying taxes on their income abroad for five years. That period was later extended to ten years. The “Milchan Act, which, incidentally, was not passed, offered to grant the Finance Minister the authority to extend the application of the law for up to 20 years.
Tali Yaron-Eldar, who served as Income Tax Commissioner from 2002 to 2004, noted earlier this year that Israel is not the only country with such laws: “England has exactly the same status, which allows people not to report for 15 years,” she told Israel Hayom. “Italy also has such a clause in law and in other countries.”
“In the end, the debate here is essentially about one’s world view,” Yaron-Eldar said.
Amichai Perry, a senior partner at Alter & Co., which specializes in tax law, suggested that “to the extent that the tax exemption is granted, reporting or non-reporting is not in order to benefit these immigrants or to reduce tax payments in Israel, since they are exempt from taxes anyway. With regard to the issue of transparency, the borderline between transparency and voyeurism is very thin.”
Perry suggested potential olim and returning citizens would be more reluctant to come to Israel if they foresee disputes with the Tax Authority.