Income Tax Ordinance [New Version]

Where the Director has reasonable grounds to assume that a person has breached a provision of the provisions under this Law as referred to in section 195j (in this Section – the violator), and intends to impose on that person a monetary sanction under that section, the Director shall give the violator notice of the intention to impose a monetary sanction on them (in this Section – notice of intent to charge); in the notice of intent to charge, the Director shall specify, inter alia, the following:

A violator to whom a notice of intent to charge has been given in accordance with the provisions of section 195k may present their claims, in writing, and at their request within the framework of such claims – also orally, before the Director, with respect to the intention to impose a monetary sanction on them and with respect to its amount, within 30 days from the date of delivery of the notice, and the Director may extend the said period by an additional period not exceeding 30 days.

In the case of a repeated breach, an amount equal to the monetary sanction prescribed for that breach shall be added to the monetary sanction; for this purpose, "repeated breach" – a breach of a provision of the provisions under this Law as referred to in section 195j, within two years of a previous breach of the same provision in respect of which a monetary sanction was imposed on the violator.

The violator shall pay the monetary sanction within 30 days from the date of delivery of the payment demand as referred to in section 195m.

Where a violator has not paid a monetary sanction on time, linkage differentials and interest as defined in section 159a(a) (in this Section – linkage differentials and interest) shall be added to the monetary sanction for the period of arrears, until its payment.

A monetary sanction shall be collected for the State Treasury, and its collection shall be governed by the Tax (Collection) Ordinance.

In respect of a single act constituting a breach of a provision of the provisions under this Law enumerated in section 195j and of a provision of the provisions under another law, no more than one monetary sanction shall be imposed.

Once effect has been given to an agreement as referred to in section 196, the duty of confidentiality under section 234 shall not prevent the disclosure to an authorised officer of the reciprocating state of any information that is required to be disclosed under the agreement, subject to the provisions of Chapter IV.

The Minister of Finance may make Regulations for the implementation of the provisions of an agreement.

In this Chapter –

"income tax" – excluding company tax;

"Israel taxes" – income tax and company tax;

"foreign taxes" – taxes paid by a resident of Israel to the tax authorities of a state outside Israel on income produced or accrued in that state, including taxes paid to states that form part of a federal state or to regional authorities forming part of that state, calculated as a percentage of income, and excluding municipal taxes;

"foreign income" – income produced or accrued outside Israel;

"foreign income from a particular source" – foreign income as classified according to the sources of income prescribed in section 2, in Part 5 or in Part 5-C, after deduction of the permitted deductions therefrom and the losses permitted to be set off against it, all in accordance with the provisions of this Ordinance.

Where the agreement permits a credit of company tax and income tax, the amount of the credit shall first serve to reduce the company tax on that income, and to the extent that it cannot all be applied for that purpose – shall serve to reduce the income tax thereon; where the agreement permits a credit of income tax only, section 201 shall be construed as if "income tax" were written therein in place of "Israel taxes".

"indirect foreign taxes" – taxes paid by a body of persons that is a foreign resident on income which, after payment of the tax, was distributed as a dividend;

"grossed-up dividend" – the amount of the dividend income received after deduction of withholding tax, plus the tax withheld at source, plus the indirect foreign taxes.

"ordinary income" – taxable income on which a special tax rate has not been imposed;

"income ratio" – the ratio obtained by dividing the amount of foreign income from a particular source that constitutes ordinary income by the total amount of the individual's ordinary income;

"special tax rate" – a tax rate applicable in Israel that differs from the tax rate prescribed in section 121;

"credit ceiling" – the amount obtained by multiplying the income ratio by the amount of income tax on the total ordinary income of an individual, before the granting of a credit under this Section.

In computing foreign income chargeable to tax in Israel, no deduction shall be allowed therefrom in respect of foreign taxes.

Where the agreement provides, in respect of certain categories of dividends – those and not other categories – that foreign taxes not imposed on them directly or by way of deduction shall be taken into account for the purpose of a credit against Israel taxes thereon, and a dividend has been paid that is not of those certain categories – then if the dividend was paid to a company that has direct or indirect control over at least half of the voting power in the company paying the dividend, the credit shall be allowed as if the dividend were of those certain categories.

Foreign tax shall be creditable against Israeli tax applicable in a tax year only if it was paid in the foreign state no later than twenty-four months after the end of that tax year, except for tax that was required to be paid on undistributed profits as defined in section 75b; foreign tax paid after that period in the foreign state shall be creditable in the tax year in which it was paid in the foreign state against the tax applicable in Israel on foreign income from that same source, and the provisions of this Chapter shall apply thereto, with the necessary modifications; in the event of a dispute regarding the amount of the credit, the person requesting the credit has the right of objection and appeal as referred to in sections 150 and 153, within the framework of the objection and appeal against the assessment determined for that person.

Where an individual has income whose place of production is in Israel solely by reason of the provisions of section 4a(b)(1), the individual's income shall be regarded for the purposes of the provisions of this Section as foreign income, and the taxes paid to the tax authorities of a state outside Israel in respect of that income shall be regarded as foreign taxes.

Where a loss from a controlled business has been set off against income in Israel as referred to in section 29(2)(c) or (e), no credit under this Chapter shall be granted against Israel taxes with which a resident of Israel is chargeable on taxable income derived from a business outside Israel in the two years preceding the tax year in which the loss was set off and in the five years following it, consecutively, up to the amount of the loss so set off.

No credit shall be granted against Israel taxes with which a person is chargeable in a tax year if the person has requested that no credit be given in respect of that person's income in that year; if such a request has been made – the provisions of section 205a shall not apply.

Where it is found that the amount of the credit was determined in excess or in deficit, following a change in the amount of tax paid in Israel or abroad or by reason of the provisions of section 207d – any provision in any enactment limiting the time for making an assessment or for claiming relief shall not apply to an assessment or a claim arising from the change, if made no later than the end of two years after the assessments, changes and other decisions, in Israel or abroad, that are material to the question of whether a credit exists and what it is.