Israel Tax Authority seeks to close cryptocurrency loopholes

For years, the Israeli Tax Authority has been trying to get its hands on the profits of Israelis active in the cryptocurrency market who are subject to tax in Israel. A week ago, a state comptroller report indicated that taxing these profits could generate annual revenues worth NIS 3 billion, which are lost due to the lack of enforcement of the law in this area.

Since 2018, the Israeli Tax Authority has published a position paper under which cryptocurrency is considered an asset for tax purposes, and investors in cryptocurrencies will be assessed a capital gains tax of 25% of their profits, as long as the activity does not rise to the level of a business. Now, a few days after the publication of the State Comptroller’s report, the Israel Tax Authority has published a new draft law to consolidate the position it announced six years ago into legislation. The bill also clarifies when gains from dealing in cryptocurrencies are considered “Israeli” for tax purposes.

The draft law, published by the Israel Tax Authority and the Office of the Accountant General of the Ministry of Transport, defines digital assets, specifying that cryptocurrencies and other digital assets, including digital tokens and NFTs, will be classified as assets under the tax. decree, and are subject to capital gains tax. If the activity amounts to a business, it will be taxed as a business, or at the merchant’s marginal tax rate.

Capital gains from the sale of a digital asset will be considered to arise in Israel if the seller was resident in Israel when the asset was purchased. In addition, if the digital asset embodies a direct or indirect right to property located in Israel, or of an Israeli resident, the seller will be liable for capital gains tax on its sale.

circumstance. “The amendment regarding the place where the income is produced is intended to overcome the interpretation of the law according to which the asset is located outside Israel, which may sometimes lead to Mysterious to a new immigrant who holds cryptocurrencies and sells them after immigration, under the proposed amendment, as long as the coins owned by the immigrant do not give anything direct or indirect ownership of an asset or company in Israel, he will be exempt from taxes in Israel on the sale of coins. Purchased before immigration.

Bracha points out that if a new immigrant buys cryptocurrencies after the immigration date, since he will already be considered a resident of Israel, the gains from the sale of these coins will be taxable in Israel, unlike the current exemption for new immigrants that applies to foreign securities that Purchased even after the migration date. “This is a tax distortion,” he says.

“The amendment will affect all traders and holders of cryptocurrencies who until now believed, on their own initiative or because of a legal opinion they received, that cryptocurrencies can be classified as currencies and not as assets, and that the appreciation of the value of the bitcoins they hold will be tax-free in Israel,” he adds. .

The Israel Tax Authority estimates that state revenues have been deprived of taxes on billions of shekels in gains from cryptocurrency sales, and hopes that the legislation will provide greater certainty in this area, and also ensure better management of the risks that this activity poses to the state. Economics, such as tax evasion and the use of digital assets to launder money.

Criticizing the amendment, lawyer Dr. “The Israeli Tax Authority has completely ignored the obstacles in this area and the legislative failures in Israel that cause difficulties for cryptocurrency traders,” Bracha says. “The right legislative amendment should bring a greater degree of certainty on the one hand, but on the other hand it should lead to solving existing problems and removing Existing obstacles. The main obstacle in Israel is the inability to deposit cryptocurrency trading proceeds into the banking system in Israel. This is a major obstacle that makes cryptocurrency traders keep their profits outside of Israel or find an alternative solution to transfer funds to Israel, which costs the companies involved very high commissions.

circumstance. Idan Ben Yacoub, a member of the National Cryptocurrency Committee of the Israeli Bar Association, adds, “The language of the draft law creates a material loophole in the way tax liabilities are created and determined. Under the draft law, the Israeli tax authority bases the responsibility for payment upon contact with the State of Israel, as opposed to capital profits.” Money, for example, where taxes generally depend on where the taxpayer resides – an important point when it comes to digital assets. Furthermore, the reference point should be the “sale” date, when the tax event occurs, not the “sale” date. purchase, and the tax should be calculated accordingly. This is the norm in most assumptions regarding tax liability and collection, and the same should apply to digital assets.”

The publication of the draft law comes on the heels of a State Comptroller report last week that criticized the Israeli Tax Authority for not acting effectively to access billions of shekels hidden in the cryptocurrency market, with the state missing out on collecting an estimated NIS 3 billion in taxes. State Comptroller Matanyahu Engelman placed the blame on the tax authority, which did not take most of the necessary steps to improve the ability to collect taxes, at a time when the debt burden on Israel is increasing due to the war and security needs. The State Comptroller stressed the need to study how to impose full taxes on the cryptocurrency market, before the government lifts the tax burden on the public.

Published by Globes, Israel Business News – en.globes.co.il – on November 11, 2024.

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