Finance Committee Discusses Imposing VAT on Imported Digital Services

The Finance Committee, discussed the tax chapter of the Arrangements Law, addressing the section on the requirement for VAT payments on importing digital services (the so-called “Netflix tax”).

The bill stipulates that foreign residents (mainly multinational corporations) providing digital services in Israel will register for tax purposes in Israel and will pay the VAT instead of the service recipient, who is currently required to do so.

Throughout the discussion, Israel Tax Authority (ITA) officials said that these services are already subject to tax for all organizations, companies and private individuals, but that [the tax] has not been collected until now. Conversely, opposition MKs said that it cannot be said that a tax that has never been collected is not a new tax, and that the direct costs that the various bodies would pay in VAT would be passed on to the citizens in the form of price hikes for the services.

Committee Chair MK Kushnir replied that a tax that has not been collected is not the same as a new tax, and added that the failure to collect the tax from foreign content services was harming the local providers, their wages and their ability to hire additional workers.

Committee Chair MK Kushnir summed up the meeting, calling upon the ITA to change the tax liability with regard to non-profits, and to determine that the liability would apply to the service providers, as is the case with private individuals. MK Kushnir also urged the ITA to rethink the start date, given the complexities that arose regarding the tax collection mechanism.