Israel to join new OECD digital tax treaty

In his first major decision as finance minister, Avigdor Liberman said on Tuesday Israel will participate in the OECD’s digital economy taxation outline.

The plan, which is expected to be adopted by 139 countries on June 30, will provide a new framework for countries to collect taxes from global Internet giants like Facebook and Amazon, which sell goods and services everywhere while skirting many local tax requirements. Liberman agreed to the plan’s principles after consulting with advisers from the Finance Ministry.

“The economy is becoming more and more global and we are required to take policy steps in cooperation with other countries,” Liberman said. “The Finance Ministry will work to ensure that the Israeli economy meets international standards for various fields including taxation, and environmental standards like a carbon tax. The new policy will enable the State of Israel to receive revenue from the giant companies for their activity in Israel.”

The taxation program addresses two specific goals. The first is to make sure that global corporations pay taxes on services and products consumed by residents, even if there is no physical presence in the country.

The second seeks to prevent tax planning that would allow companies to seek tax havens, putting an end to the “race to the bottom” phenomenon whereby countries compete with each other to offer lower tax rates. The G7 group announced earlier this month that group members had agreed to charge a minimum corporate tax rate of at least 15%.

The challenge of local taxation for global corporations threatens the volume of tax revenues and the fairness of tax payments in many countries. The expansion of the digital economy and the free movement of capital have created gaps in tax legislation that can easily be exploited to avoid tax evasion, the Finance Ministry noted.