Israeli Tax Alerts | Practical Interpretations | 2008-2020

49 Further, when the beneficiary individual sells the company, there may be a claim that the exemption will not apply, because the asset that has been sold is an asset in Israel and in light of the rationale that it is determined in the regulations that capital gains from its sale will be deemed to be a gain that has been produced in Israel. We would mention that the law provides an exemption to a beneficiary individual, even after the benefits period, which is linear, such that only part of the capital gain arising after the end of the benefits period relative to the entire period in which the shares are held will be chargeable with taxation. In our opinion, the language of the law supports specifically the application of the exemption, since the exemption is granted on a capital gain from the sale of an asset that the beneficiary individual had outside of Israel. There is no doubt that this asset was outside of Israel until the end of the benefits period; moreover, even if the company is now resident in Israel for tax purposes, it is still a company that was incorporated outside of Israel and as such it is deemed to be an asset outside of Israel. Insofar as the exemption may be negated despite the language of the section, in accordance with the practical interpretation of the Law, at the least a proportionate exemption should be granted for the period in which there is no doubt regarding the company being a foreign company. In addition, insofar as the foreign company has been acquired or founded by a beneficiary individual before they came to Israel, it will be possible to support a position according to which they will be exempt from tax at the time of its sale (in a linear manner) even though it is deemed to be resident in Israel because of the control and management at the time of its sale. This is because of the provisions of the Ordinance, which grant a tax exemption for a beneficiary individual on the sale of a security in a company that is resident in Israel, and solely that they were a foreign resident at the time of the purchase of the security, and capital gains will apply to this matter, as of the security was an asset that he had outside of Israel before he became a resident of Israel. In a case in which the issue is not with a sale-back of shares in a company but rather the sale- back of activity/ assets by the Company, "the problem" is even more certain and significant, since the more that the issue is with a company that is resident in Israel under the force of "control and management" at the time of the sale, then two levels of tax will apply to the sale – corporate income tax on the sale of operations/ the assets and dividend tax when the profits are distributed to the beneficiary individual. Insofar as a (full or partial) tax exemption may be granted on the sale of the shares, it will be possible to sweeten the pill by liquidating the