Israeli Tax Alerts | Practical Interpretations | 2008-2020

166 according to the tie-breaker rules in the residency section, for the next two years he shall still be considered a resident of the treaty country; in other words, according to both the internal law and the treaty, the individual is considered a non-resident of Israel for 11 years. Will those two years in which the individual is considered a non-Israeli resident according to treaty provisions only, lead the individual to “safe shores” as a “veteran returning resident” (a unique status given an individual who was a foreign resident for at least 10 years is exempt from tax and reporting for 10 years)? The Tax Authority’s position on this matter is negative, as publicized in the professional circulars and decisions on taxation with regard to this issue, and as its aforementioned position - that the non-Israeli residency period according to the treaty only shall not be included in seniority counted for the purpose of determining the status of a "veteran returning resident"; this status shall be determined only if the individual was a non-Israeli resident according to Israeli Tax Ordinance provisions for the required period of time. In our opinion, in light of the Tax Authority’s stance on residency of a Foreign Professional Company as stated in Section 1 above, and its apparently similar stance on application of exit tax as stated in Section 2 above, cases of "veteran returning residents" should be treated analogously - counting years of non-Israeli residency under the treaty as non-Israeli residency under Ordinance provisions as well; and, as continued above, giving that individual benefits entitled to "veteran returning residents", since it doesn’t make sense for the Tax Authority to seek to apply the rule only in cases in which tax may be imposed, and not apply it in cases where tax benefits are appropriate. (December 2016)