Israeli Tax Alerts | Practical Interpretations | 2008-2020

31 factor whatsoever , which would reduce the part of the income that is attributed to Israel, because of the fact that the economic activity during the Corona period has in any event been reduced significantly. Control and management and the permanent establishment issue in activity involving the provision of services An enforced stay in Israel because of the circumstances that exist, which extends for weeks and maybe even for several months, may lead to the determination of Israeli residency for a company, because of the existence of control and management from Israel, or lead to the existence of an enforced permanent establishment in Israel. 1. Residency of a company The definition of the term "resident" that appears in the Israeli Tax Ordinance, in relation to a Company, determines that a company (which was incorporated abroad) will be considered as being resident in Israel, if the control and the management of its business are operated from Israel. Thus for example, an officer who is a member of the management of an international company, who is "stuck" in Israel as a result of the Corona crisis and who continues to manage the company as usual, could expose that foreign company to taxation in (on all of its income). Moreover, the determination of Israeli residence for such a company, even if for a short period of time, may cause the imposition of "exit tax" on the Company, at the time at which the Company ceases to be deemed to be resident in Israel, after the Corona period, and clearly, this is not what the legislator intended. Our position is that the control and management mechanism in relation to the Company should be examined from a long-term perspective, and no determination regarding the company's place of residence for tax purposes should not be concluded from a temporary stay in Israel, all the more so as a result of circumstances that are not under the control of the company or its manager. 2. Permanent establishment: A similar issue arrives in relation to the existence of a permanent establishment in Israel, which may arise because of a senior officer's stay in Israel, which has been forced by the circumstances and who executes decisions in the Company's name (such as in the case of the manager in the example that appears above).