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Ordinance

Income Tax Ordinance

פקודת מס הכנסה

Chapter Two: Collection

Division A: Advance Payments

174.

In this Sign —

"the Determining Year" — the last tax year in respect of which the income of the taxpayer was assessed on or before the tenth day of May of the tax year, whether or not an objection was filed.

Definitions

175.

Every individual shall pay on the tenth day of each of the ten months from May through February of each tax year, on account of the tax for that year, an advance payment of 10% of the amount of tax with which he was charged for the Determining Year; however, if that individual was permitted to compute his income in accordance with a special period as provided in Section 7, he shall pay the said advance payment on account of the tax for the tax year in which the special period that includes the date of the said advance payment comes to an end.

Advance Payment of an Individual

176.

(a)A body of persons shall pay on 10 June, 10 September, 10 December and 10 March of each tax year, on account of the tax for that year, a quarterly advance payment of 25% of the amount of tax with which it was charged for the Determining Year; however, if it was permitted to compute its income in accordance with a special period as provided in Section 7, it shall pay the said advance payment on account of the tax for the tax year in which the special period that includes the date of payment of the said advance payment comes to an end.

(b)If the Determining Year was the tax year 1960 or any subsequent tax year, and in that year a dividend was distributed that is deductible under Section 127(b)(2), the amount of the quarterly advance payments shall be the amount that would have been payable in that year had the dividend not been distributed.

(c)Tax which a body of persons deducted pursuant to Section 161(a) from a dividend deductible under Section 127(b)(2) and paid to the Assessing Officer shall be regarded as a payment on account of the advance payments.

[Body of Persons]

Advance Payment of a Body of Persons

177.

An amount deducted at source in the tax year, pursuant to Sections 161 and 164–170, from the income of the taxpayer in that year, shall be regarded as a payment on account of the advance payments which that taxpayer is liable to make under Sections 175 and 176.

[To be credited to

advance payment account]

Deduction at Source

178.

If the amount of tax for the Determining Year is in dispute but exceeds the amount of tax most recently determined by a final determination, the advance payment shall be computed according to the undisputed amount of tax for the Determining Year or according to the amount of tax determined as aforesaid, whichever is the greater —

"final determination", in this Section — a determination that is not subject to objection or Appeal.

[The Determining Year]

Dispute as to Tax

179.

The Minister of Finance may, by Order, increase or reduce the rate of advance payments under this Sign, and likewise change their due dates; he may also prescribe different rates of advance payments in respect of different Determining Years, and, with the approval of the Finance Committee of the Knesset — in respect of different classes of taxpayers.

[To change rates

and dates]

The Minister of Finance is Entitled

180.

The Assessing Officer may exempt a person from an advance payment under this Sign, in whole or in part, if it has been proved to his satisfaction that the tax for the tax year in which the advance payment is being made, and in respect of which that taxpayer may be liable to tax, will be less than the tax with which he is charged in the Determining Year.

[Entitled to exempt]

Assessing Officer

181.

A taxpayer who had chargeable income and who was not previously liable for the payment of tax shall pay advance payments pursuant to Sections 175 or 176, as the case may be, as a percentage of the amount of the estimated tax which he is likely, according to his estimate, to be charged for the tax year on that income, and shall submit to the Assessing Officer together with the first payment

[New Taxpayer]

158 Book of Laws 6 9th Iyyar 5721 — 25.04.1961

a declaration of the said estimated tax and an additional declaration six months after the submission of the first declaration; if he has not submitted such declarations, or has submitted such declarations but the Assessing Officer has reasonable grounds to believe that the declarations are incorrect, the Assessing Officer may determine to the best of his judgment the amount of the advance payment which that taxpayer is liable to pay, and such determination, for the purposes of objection and Appeal, has the same effect as an assessment under Section 145.

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Division B: Dates for Payment of Tax

preamble-8.

[Submission of the Return]

Payment with

182.

(a)A body of persons shall pay, at the time it submits the return under Section 131 or the estimated return under Section 133, the amount of tax due from it according to that return.

(b)With respect to other taxpayers, excluding an individual at least 75% of whose income is chargeable income under Section 2, paragraphs (2) or (5), the Minister of Finance may prescribe by Order that a taxpayer to whom that Order applies shall be liable to pay, at the time he submits the return under Section 131 or the estimated return under Section 133, the amount of tax due from him according to that return.

[Notice of Assessment]

Payment After Assessment

183.

Where a notice of assessment has been served on a person pursuant to Section 149, that person shall, within 15 days of the date of service of the notice of assessment, pay the balance of the tax due from him thereunder, and if he has filed an objection pursuant to Section 150 — the balance of the tax that is not in dispute.

[Objection]

Payment After Amended Assessment

184.

Where a notice of amended assessment has been served on a person pursuant to Section 152(a), or an Order pursuant to Section 152(b), that person shall, within 15 days of the date of service of the notice or the Order, pay the balance of the tax due from him thereunder — and if he has filed an Appeal pursuant to Section 153 — the balance of the tax that is not in dispute.

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Division C: Interest and Fines

preamble-9.

[After Judgment]

Adjustment of Payment After Judgment

185.

Where a decision of the District Court pursuant to Section 156 or a decision of the Supreme Court pursuant to Section 157 has been served on a person, the following provisions shall apply:

(1)If the taxpayer has paid too much, the excess amount shall be refunded to him together with interest as determined by the Court;

(2)If the taxpayer has paid too little, the balance shall be paid within 15 days of the date of service of the decision, together with interest as determined by the Court.

[Payment Deadlines]

Interest on Deferral of Payment

186.

The assessing officer may, if given sufficient cause therefor, extend the deadlines for payment of the tax, in whole or in part, as set pursuant to Subsection B, or the deadlines for payment of the advance payment, in whole or in part, pursuant to Subsection A, for such period as he deems fit, provided that the taxpayer shall pay for the period of deferral interest at the rate of 9% per annum.

[On Balance After Objection]

Payment of Interest on Balances

187.

On the balances referred to in Sections 183 and 184, the taxpayer shall pay interest at the rate of 9% per annum, which shall not in total exceed 4½% of the amount of each balance, commencing from the expiry of 30 days after the deadlines set for the submission of the return pursuant to Sections 132 and 133.

159 Book of Laws 6 9th Iyar 5721 25.04.1961

Fine for Late Submission of Return

188.

(a)Where a person has not submitted a return by the deadline set in Section 132 or by another deadline set in the case of a deferral pursuant to Section 133, the assessing officer may impose upon him for each month of delay a Fine of 3 percent of the amount of tax for the last tax year in respect of which he was liable to pay tax pursuant to Section 145; where that person was not liable to tax in a previous tax year, the assessing officer may impose upon him for each month of delay a Fine of 50 liras.

(b)Where a Fine has been imposed on a person pursuant to subsection (a) and it subsequently becomes apparent that the amount of the Fine paid exceeds 25% of the amount of tax he owes for that tax year, the excess shall be refunded to him.

[Submission of Return]

Fine for Non-Submission of Return

189.

Payment of a Fine pursuant to Section 188(a) shall not derogate from a person's criminal liability under this Ordinance; provided that a person against whom criminal proceedings have been brought for failure to submit a return shall not be liable to pay a Fine pursuant to Section 188(a) for the same offence, and if he has paid such a Fine — it shall be refunded to him.

[Reserved]

Criminal Liability Reserved

190.

(a)Where a person has not paid an amount he is liable to pay under this Ordinance by the prescribed deadline, a Fine shall be added thereto at the rate of 1% of the arrears amount for every 15 days of delay.

(b)A Fine imposed pursuant to this Section shall not be regarded as part of the tax paid for the purpose of a claim for relief under any provision of this Ordinance.

[On Payment]

Fine for Arrears in Payment

191.

(a)In this Section, "deficiency" means the amount by which the tax a taxpayer owes exceeds the tax he owes according to his return pursuant to Section 131, or the amount of tax assessed pursuant to Section 145(b) if he did not submit a return as aforesaid, all as the case may be.

(b)Where a deficiency has been determined in respect of a taxpayer that exceeds 25% of the tax he owes, and the assessing officer has reasonable grounds to believe that the deficiency would not have arisen but for the taxpayer's negligence without reasonable justification in the return he submitted concerning his income or in his failure to submit a return, a Fine equal to —

(1)10% of the deficiency amount shall be added to the amount of tax the taxpayer owes, if that taxpayer has not previously been assessed a Fine for a deficiency;

(2)15% of the deficiency amount, if that taxpayer has already been assessed a Fine for a deficiency once;

(3)25% of the deficiency amount if that taxpayer has already been assessed a Fine for a deficiency more than once.

(c)Where the Commissioner or a person authorized by him has reasonable grounds to believe that the deficiency was created wilfully and with the intent of the taxpayer to evade payment of tax, double the Fines specified in subsection (b) shall be added to the amount of tax that taxpayer owes.

(d)For the purposes of Sections 149–152, the addition of a Fine for a deficiency pursuant to this Section shall have the same effect as an assessment, except that in the consideration of an objection — if one has been filed — the assessing officer shall consult the committee appointed pursuant to Section 146.

Fine for Deficiency

192.

The Commissioner may reduce the rate of interest pursuant to Section 133 and pursuant to Sections 186 and 187, and the amount of the Fine pursuant to Sections 188 and 190, or waive the interest or the Fine entirely, if it has been proven to his satisfaction that the delay that gave rise to the payment obligation was not caused by an act or omission dependent on the will of the taxpayer.

[To Reduce Interest or Fine]

160 Book of Laws 6 9th Iyar 5721 25.04.1961

[The Assessing Officer May Enforce Payment]

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Division D: Enforcement of Payment

Enforcement of Payment by Assessing Officer

193.

Any amount a person is liable to pay under this Ordinance, the assessing officer may enforce payment thereof in accordance with the provisions set out below, or in accordance with the Tax (Collection) Ordinance,21 and the provisions of that Ordinance, except Section 12 thereof, shall apply to the collection of income tax as if it were a tax within the meaning of that Ordinance; however, if the assessing officer is not the district governor, the assessing officer shall send to the district governor of the district in which the taxpayer resides or in which he carries on his business, a certificate signed by the assessing officer specifying the amount of income tax arrears due from the taxpayer, and the district governor, upon receiving the certificate, shall enforce payment in accordance with the provisions of the Tax (Collection) Ordinance applicable to the collection of income tax as aforesaid.

[In Special Cases]

Collection of Tax in Special Cases

194.

(a)Where the assessing officer has reason to fear that the tax on a particular income will not be collected because a particular person intends to leave Israel, or for any other reason, he may —

(1)if that person has already been assessed in respect of that income — demand by written notice that the person immediately furnish security, to the satisfaction of the assessing officer, for payment of the tax assessed;

(2)if the person has not yet been assessed as aforesaid — assess him on the basis of the amount of income reported in the return, and if that person has not submitted a return or has submitted one that does not satisfy the assessing officer — on the basis of an amount that appears reasonable to the assessing officer;

(3)if the person was not yet required to submit a return in respect of that income — demand from him by written notice to immediately prepare a return, after which the assessing officer shall be entitled to act in accordance with paragraph (2).

(b)Where an assessment has been made pursuant to subsection (a)(2), the assessing officer shall serve notice thereof, and any tax assessed pursuant to that assessment shall be paid immediately upon service of the notice.

(c)Where the taxpayer has not paid the tax or has not furnished the security pursuant to subsection (a)(1), the competent court may, upon application by the assessing officer, issue an Order, even in the absence of the taxpayer —

(1)for the restraint of his departure from the country;

(2)for the attachment of his property.

(d)A taxpayer who has paid the tax or furnished security pursuant to this Section is entitled to file an objection and an Appeal pursuant to Sections 150–158, and the amount paid shall be adjusted according to the outcome.

Claim by Assessing Officer

195.

Tax may be claimed and recovered together with all costs from the person liable therefor by the assessing officer in his official name in a competent court, as if it were a debt owed to the Government of Israel, and may be claimed and recovered by him in the manner prescribed in Section 193.

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Chapter Three: Relief from Double Taxation

Division A: International Reciprocal Agreement

preamble-10.

[To Agreement]

Order Giving Effect to Agreement

196.

(a)Where the Minister of Finance has announced by Order that an agreement as specified in the Order has been entered into with a particular State to provide relief from double taxation in respect of income tax and any other similar tax imposed under the laws of that State (hereinafter — a reciprocating State), and that it is expedient that effect be given to this agreement in Israel — the agreement (hereinafter — the Agreement) shall have effect for the purposes of income tax, notwithstanding anything contained in any enactment.

(b)An Order made pursuant to this Section may be revoked by a later Order.

21 Laws of Palestine, Volume II, Chapter 136, p. 1674.

161 Book of Laws 6 9th Iyar 5721 25.04.1961

Duty of Confidentiality Where Agreement Exists

197.

Where effect has been given to an agreement as provided in Section 196, the duty of confidentiality pursuant to Section 234 shall not prevent the disclosure to an authorized official of the reciprocating State of any information required to be disclosed under the Agreement.

[Where There Is an Agreement]

Duty of Confidentiality / Power to Make Regulations

198.

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

[Power to Make Regulations]

Subsection B: Determination of the Amount of Relief — Definitions

199.

In this Subsection —

"income tax" — excluding corporation tax;

"Israeli taxes" — income tax and corporation tax;

"foreign taxes" — taxes paid in a reciprocating State in respect of which, under the Agreement, a credit may be granted against Israeli taxes on that income.

Definitions

200.

Where, under the Agreement, Israeli taxes on a particular income are to be credited with foreign taxes (hereinafter — credit), the provisions of this Subsection shall apply for the purpose of determining the amount of the credit.

[Double Taxation]

Provisions for Credit

201.

The amount of Israeli taxes on income shall be reduced by the amount of the credit, but Israeli taxes for any given tax year shall not be credited unless the person whose income is subject to those taxes was a resident in that tax year, and any relief granted under Section 163 in respect of a dividend shall be deemed to reduce the amount of tax on that dividend.

[Deducted from the amount of tax]

Amount of Credit

202.

Where the agreement permits the crediting of both 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 it cannot all be applied for that purpose, it shall serve to reduce the income tax thereon. Where the agreement permits only an income tax credit, Section 201 shall be construed as if "income tax" were written therein in place of "Israeli taxes".

[Prior to income tax credit]

Credit Against Company Tax

203.

The amount of the credit against company tax on any given income shall not exceed the amount of company tax which that company is liable to pay on that income.

[Against company tax]

Amount of Credit Against Income Tax

204.

(a)The amount of the credit against income tax on any given income shall not exceed the amount of tax at the average rate of tax which would have been payable on that income as computed under the Ordinance.

(b)"Average rate of tax" for the purposes of this Section means the fraction resulting from dividing the amount of tax imposed, before credit, on a person's total income by the amount of that person's total income.

[Against income tax]

Amount of Credit Against Income Tax — Aggregate Limit

205.

The total credit against income tax granted to a person for any given tax year under all the agreements shall not exceed the total income tax which that person is liable to pay for that year, excluding tax paid by him under the provisions of Sections 108–115 and 170–173, all as applicable. Nothing in this Section derogates from the provisions of Section 204.

[Income tax]

Limitation on Credit

206.

(a)When computing a credit against Israeli taxes on any given income, the income shall, for the purposes of Israeli taxes, be computed according to the following rules:

(1)No deduction shall be allowed therefrom in respect of foreign taxes, whether on that income or on any other income;

(2)Where the Israeli taxes to be imposed depend on the amount received in Israel, that amount shall be increased by the corresponding amount of foreign taxes on that income;

[Income for the purpose of credit]

162 Book of Laws 6 9 Iyyar 5721 25.04.1961

(3)Where the income includes a dividend, and for the purposes of the credit the agreement requires that foreign taxes on that dividend which are not imposed directly or by way of deduction be taken into account, the amount of the income shall be increased by the amount of those foreign taxes;

(4)Where the amount of foreign taxes on the income exceeds the amount of the credit granted in respect thereof against Israeli taxes, the excess shall be deducted from the amount of the income.

(b)Paragraphs (1) and (2) of subsection (a) (but not paragraphs (3) and (4) thereof) shall apply to the computation of total income for the purpose of determining the average rate of tax referred to in Section 204, and they shall apply to the computation in respect of all incomes on which a credit is granted under the agreements.

[Dividend tax in special cases]

Credit on Account of Dividend Tax in Special Cases

207.

Where the agreement provides, in respect of certain specified categories of dividends — those and no other categories — that foreign taxes not imposed on them directly or by way of deduction shall be taken into account for the purpose of crediting Israeli taxes thereon, and a dividend is paid that does not fall within those specified categories, then if the dividend is 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 specified categories.

Waiver of Credit

208.

No credit shall be granted under the agreement against Israeli taxes on a person's income in any given tax year if the person has requested that no credit be granted in respect of his income in that year.

[Claim for credit]

Time for Filing a Claim

209.

A claim for credit shall be submitted no later than two years after the end of the tax year. In the event of a dispute regarding the amount of the credit, the claimant has the right of objection and Appeal in the same manner as in respect of an assessment.

[The credit]

Error in Computation

210.

Where it is found that the amount of the credit was determined in excess or in deficiency as a result of a change in the amount of tax paid in Israel or abroad, 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, provided it is 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.

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