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International Tax Planning

Michael Decker
Michael Decker

What is international tax planning? International tax planning is a field whose importance increases every year. It covers various branches of international tax law, including conducting business according to international tax treaties, approving international transactions, proper reporting to tax authorities in Israel and abroad, and more. The boundary between legal and illegal tax planning is not always clear, and requires the aid of an attorney with experience and expertise in the field. In this article, attorney Michael Decker, a partner in our firm and a specialist in corporate law and international taxation, explains several issues that business owners must be familiar with.

International tax planning

International tax planning – what does it include?

The importance of legitimate tax planning on the international level is continually increasing. Many Israeli companies have been expanding their operations abroad in recent years, such that they need to know how to handle themselves properly and avoid actions that contradict tax laws in each one of the countries where they are operating. Proper international tax planning enables companies to maximize their investments and profits, hence its great importance. Ideally, international tax planning should be done at the earliest stages of an overseas venture by an Israeli company. This includes ensuring that the financing of the overseas operation, the form of incorporation, the locations of the company’s commercial activity, etc., are subject to legal tax planning. Below we will explain the main spheres in which proper tax planning plays a major role.

Legitimate tax planning

International tax planning is a slippery subject. The law in Israel and most developed countries allows individuals and companies to conduct tax planning that enables them to conduct business activities and reduce, as much as possible, the tax burden they carry. In an important ruling by the Supreme Court (known as the Promedico case) it was ruled that tax planning in itself does not constitute a crime. However, it is very important to make sure that the tax planning does not slide towards the realm of tax evasion, which is illegal and likely to lead to fines and even criminal charges. This is even more necessary when the operations are overseas, in countries where the local tax laws are unfamiliar to those conducting the business activities. Accordingly, it is important to make sure that the tax planning is done according to the law.

Proper reporting to tax authorities in Israel and abroad

Alongside businesses’ reporting obligations to Israeli tax authorities, including income tax, VAT and the National Insurance Institute, companies operating overseas are generally required to report to the tax authorities in the foreign countries. It is important to do the reporting fully and continuously, in order to make full use of the rights and benefits from the tax authorities and avoid sanctions for incomplete reporting or lack of reporting.

Tax Treaties

International tax treaties are a legal solution created by many countries worldwide to make things easier for businesses operating in several countries. Israel alone is a signatory to about 60 international tax treaties at present, with a list of countries that includes the European Union states, the US and the United Arab Emirates. Operating according to such tax treaties is part of international tax planning. This is because there are often different taxation tracks to accord with certain treaties. It is important to become thoroughly familiar with the treaties in order to ensure that a taxation track in a particular country is the optimal taxation for you.

International transactions

International transactions for acquisitions, mergers or acquisition of company assets (including intellectual property) are likely to be particularly challenging from the point of view of international tax planning. These transactions are generally taxed with particularly large sums. Many times the tax rate depends on how the transaction is defined. In order to know how to reach the optimal taxation level for a specific transaction, it is important to be thoroughly familiar with tax law in both Israel and the countries where the transactions are conducted or where the companies involved in the transactions are located. Proper planning in this respect should reduce the amount of tax actually paid.

International tax planning – contact an attorney specializing in corporate law and international taxation

In this article we explained about international tax planning and the importance of doing it properly and according to the law. For any individual question on this issue, attorneys from our office will be happy to provide you with an answer. Our law firm specializes in representing businesses from Israel and worldwide on a variety of legal issues in corporate law and international taxation. In order to provide our clients with a comprehensive legal solution, our office cooperates with colleagues in leading offices worldwide in the field of international taxation. You can contact us at the telephone numbers and email address below.

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