Israeli Tax Alerts | Practical Interpretations | 2008-2020

201 the trustee's assets will be viewed as assets that are held by a foreign resident and the trustee's income as income of a foreign resident individual". A trust may change its residency where there is a change in the particular circumstances, such as the addition of a beneficiary, a change in the revocability terms, and of course where there is a change in the residency of a settlor or a beneficiary, as the case may be. Thus, for example, in a trust pursuant to a will (a "Will Trust") in which there is a beneficiary that is resident of Israel who becomes a foreign resident, the trust will change its classification (and accordingly its residency) from an "Israeli Will Trust" to a "Foreign Will Trust", at the time at which it is determined that the exit tax provisions will apply, mutatis mutandis. A change in the residency of individuals (primarily in the direction of leaving Israel) is a complex issue, which has been discussed every now and again within the context of various judgments, tax decisions and other professional directives, as well as in numerous discussions that have been held between representatives and the tax authorities. The Tax Authority is contemplating the issue at the present time, with the intention of changing the tax residency rules in respect of an individual, such that instead of the substantive test of "center of life", it will include technical and measurable tests (primarily the index of the days of presence), which will constitute absolute (irrefutable) assumptions. This change will lead to certainty regarding the timing of the severance of the tax residency for the purposes of the provisions of the Ordinance (internal law) on the one hand and on the other hand it will expand the array of cases in which the individual will be deemed to be an Israeli resident in accordance with the provisions of the Ordinance but as a foreign resident in accordance with the provisions of a relevant treaty country. These cases may include circumstances in which, for example, the individual is a resident in a foreign country but visits Israel a lot for whatever reason. The question arises - what is the law in respect of a trust in which the settlor or the beneficiary has changed their residency in a manner and in circumstances, which are also supposed to change the trust's residency (see above), however the severance of residency is done solely in accordance with a treaty and not in accordance with the provisions of the Ordinance? There is no clear answer to this. Our position is that in such a case the residency of the trust is to be changed from an Israeli trust to a foreign trust. This position is based on the assumption that the provisions of the trusts chapter were intended to visualize a legal situation that would exist were the assets are held by the settlor or the beneficiary and not by