![]() The Supreme Court thereby reversed a previous decision of the lower court in which it was decided that the provisions of the Income Tax Ordinance (the “ Ordinance“) which relate to the taxation of Trusts, also apply to the contribution of Israeli real estate to a Trust. Israel’s Supreme Court recently handed down a ruling, in the “Geliss” matter, (CA 7610/19), which makes it clear that the transfer of Israeli real estate assets to a Trust is considered as a tax event, which will be subject to both Purchase Tax and Capital Gains Tax unless the Settlor is the only Beneficiary, and a notification of the Trust is submitted in timely fashion to the ITA. (i) New Decision of Israel’s Supreme Court. ![]() In light of this uncertainty, two recent attempts have been made to clarify the law, but in practice, seem to have increased the uncertainty: The precise application of the above provisions is unclear, and leads to many areas of uncertainty. By the same logic, when an individual transfers real estate to a Trust for his or her own benefit, the transfer is exempt (since the transfer is effectively to himself or herself). In such a case, if notification has been filed with the ITA, the Beneficiary of the Trust will be considered as the purchaser of the real estate, and therefore the transfer of the real estate from the Trustee to the Beneficiary will not be deemed a tax event and subject to tax. The one specific reference in the RE Law to Trusts is a provision that when real estate is purchased in trust on behalf of a Beneficiary, notification of the Trust arrangement should be provided to the Israeli Tax Authority (“ ITA“) within 30 days. As opposed to the law dealing with taxation of income and capital gains generally, the RE Law does not include detailed provisions regarding the taxation of Trusts. The taxation of Israeli real estate is governed by a separate law known as the Law for the Taxation of Real Estate (the “ RE Law“). These developments may significantly affect many trust structures that own Israeli real estate directly or indirectly, and therefore necessitate a careful review of these structures. We are writing to update you on two recent significant developments regarding the taxation of Trusts that hold Israeli real estate.
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