The Rise and Fall of the New Israeli Deemed Distribution Rules to Non-Israeli Affiliates
Herzog Fox & Neeman discussed the new Israeli deemed distribution rules (click here), set out under the newly enacted Section 3(i1) of the Israeli Income Tax Ordinance (the “Ordinance”) in November, 2017, and now, the Israel Tax Authority took an aggressive position in a published circular, under which the new rules were applicable to leans form an Israeli company to its non-Israeli parent company or affiliate. This view was contrary to the legislator’s intent to apply these rules to shareholders who are individuals. And indeed, an amendment to the Ordinance was recently enacted, which clarifies that the new rules do not apply to loans to corporate shareholders that are not fiscally transparent. This amendment is effective retroactively since 1 January, 2017.
