Lawmaker Demands Israel End Google's Tax Free Status

Yoav Kisch of Netanyahu's Likud party proposes Israel offset health, education and welfare costs by charging multinational companies value-added tax.

A blimp reading 'Google must pay tax' floats in the Tel Aviv skies in April, 2016.
Baz Ratner/Reuters

A huge blimp sailed above Google's offices in Tel Aviv on Sunday bearing an emblem demanding that the company and other multinationals in the country pay Israeli taxes.

Yoav Kisch, lawmaker with Prime Minister Benjamin Netanyahu's Likud party, reportedly sponsored the protest as a plug for legislation he has introduced that seeks to cancel certain tax exemptions for global companies with offices in Israel.

"The law should not distinguish between giant and small businesses. International corporations making huge sums of money from Israel should be required to pay like other Israeli company," he said.

"There are companies that come and make a good living in Israel, but they don’t pay any taxes," Kisch added during a videotaped interview with Ynet Sunday. 

"Why should a grocer pay all his taxes while the giants elude paying?" Kisch said.

Kisch said international treaties prevent Israel from exacting income taxes and other charges from companies based abroad, but that such agreements wouldn't include a 17% value-added tax (VAT) Israel tacks onto the prices of most goods and services in the country.

Foreign nationals and tourists are currently mostly exempt from these fees.

Kisch said that exemptions for foreign companies amount to tens if not hundreds of millions of shekels a year which he felt Israel could use to help its overburdened health, education and welfare programs.

Last month the Finance Ministry said it was already drafting legislation to charge value-added tax overseas Internet companies who sell downloadable goods and services online in Israel, offer communications services or radio and television broadcasts, 

Israel isn’t alone is imposing VAT on cross-border purchases. An initiative sponsored by the Organization for Economic Co-operation and Development was launched last year in response to what it said was growing concern from governments worldwide over the ever-rising volume of sales on which no VAT is paid – particularly on products bought by consumers from vendors outside their home jurisdiction.

In 2014, business-to-consumer (or B2C) e-commerce sales were estimated to exceed $1.4 trillion – an increase of nearly 20% from 2013. The OECD said B2C sales were expected to reach $2.4 trillion by 2018.

Right now, when an Israeli consumer buys a downloadable product or service like a mobile app, the purchase is liable for VAT. But if the same product is ordered from, say, a company in Singapore, the Israeli buyer isn’t liable for Israeli VAT and the Singapore seller isn’t liable for Singaporean VAT.

In fact, because no physical product passes through Israel’s ports or airports (where goods are checked by the customs authorities), Israel has no record of the sale at all.

The effective exemption creates unfair competition for Israeli companies selling in their home market and deprives the government of what sources say could be tens of millions of shekels in tax revenues every year.

“The digital economy and the sale of electronic services are services whose rapid growth and level of activity is growing from year to year, so that [tax] revenue is likely to grow significantly once the law is fully emplaced,” the treasury said in a statement last month.