Why doesn’t the Israel Tax Authority collect VAT from Internet giants such as Google Inc. (Nasdaq: GOOG) and Facebook Inc. (Nasdaq: FB) for their extensive activity in Israel. That is the question underpinning a petition to the High Court of Justice against the Tax Authority, its director general, Moshe Asher, Google, and Facebook. The petition states that, because of the VAT "exemption" for such large companies, "the Israeli public loses twice: once with the loss of VAT payments to the public's treasury; and the second time by stealing livelihood from taxpaying Israeli businesses whose turnover is reduced by competition from multinationals."
The petitioner, Adv. Guy Ophir states in the petition, "For the Tax Authority, all taxpayers are equal before the heavy tax burden, but some taxpayers are more equal than others, and they are not required to pay VAT, and do not even face criminal charges for aggressive tax planning, non-reporting, and misleading the Israeli consumer into thinking that the VAT collected from it is paid back into the public treasury."
Ophir claims that Internet multinationals have extensive business activity in Israel, online and through a physical presence, providing services and selling goods customized for the Israeli market - households and the business sector.
"Among these multinationals are Google, Facebook, YouTube (which is owned by Google), Amazon.com, eBay, Microsoft, WhatsApp, Dropbox, and many other others," says Ophir. However, he states in his petition that he focuses on two multinationals which operate in Israel but which do not pay VAT - Google and Facebook - "for convenience, lack of work capacity, and in view of their large turnover in Israel."
Ophir claims that in the face of the tax-evading multinationals, taxpaying Israeli companies and businesses lose because of this unfair advantage. Three months ago, in a letter to Moshe Asher, Ophir demanded that the Tax Authority should begin levying VAT on these big multinationals, and to do so retroactively for the past seven years, plus linkage and interest.
In the letter, Ophir threatened that if he did not receive an answer within a month, he would petition the High Court of Justice. He claims that the Tax Authority did not respond to his letter, except to say that "the matter is under review". "They did not bother to find the time to respond in writing to the letter. Had they acted on it, they would have generated huge revenues for the Treasury and solved an outrageous injustice."
Further in the petition, Adv. Ofer Moscovich claims that Google even misleads the public by stating in its Hebrew-language advertisements that the price for its service includes VAT, when in practice it does not pay VAT on its revenue in Israel - or in any other country.
The Tax Authority said in response, "The Tax Authority has recently been examining the handling of multinationals with online activity in Israel, and the Tax Authority will shortly publish a position paper on the matter. Adv. Ophir's letter was received at our office, and is under review as part of the general handling of the matter. As for the various claims raised by Adv. Ophir, when we receive the petition, we will study it and file our response with the court."
Published by Globes [online], Israel business news - www.globes-online.com - on October 14, 2013
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