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Israeli Double Tax Treaties: Pre Ruling 253/12

Pre ruling 253/12 deals with the question whether a foreign company who employs a worker in Israel has a permanent establishment in Israel. The main facts of the Pre ruling were as follows:

The foreign company rendered financial services outside Israel, and has no clients in Israel, i.e., its clients were all outside Israel. The company employed an Israeli resident individual as an account manager from her home in Israel (the "Employee"). The Employee was the only employee from Israel and a member of a four people team.

The Employee's services included risk analyzes of the foreign company's clients, credit analyze, depreciation estimation and more; The employee was providing the company with neither marketing services, nor sales services; the Employee was neither negotiating on behalf of the company, neither recruiting new clients for the company, nor meeting the company's existing clients. Moreover, every trading strategy had to be approved by a senior manager of the company.

Despite the Employee lack of independent authority, the ITA determines shortly that the Employee employment in Israel constitutes a permanent establishment for the company in Israel in accordance with Article 5 to the tax treaty between Israel and US. However, Circular 253/12 doesn't explain the reasons for it and if the Employee is considered as a dependent agent of the foreign company in Israel.


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