This is an allegorical tale (it is based on real events, although the names and the circumstances have been changed for the purposes of the newsletter).

Jacques Cohen is a wealthy individual and a resident of one of the countries in Europe, who has created a trust for the members of his expanded family, who are foreign residents. Jacques, who used to be a doctor and is a well-known philanthropist, wishes to include the Beilinson Hospital as a beneficiary in the trust in order to contribute to its development and thus strengthen the medical services in Israel.

After having consulted with his tax consultant in Israel, Jacques understood that there is no impediment whatsoever to recording a hospital in Israel as beneficiary, since the legislator, who wished to encourage the giving of donations to public institutions of this type determined that “a beneficiary for public purposes”  in a trust of foreign residents or in a trust with a beneficiary who is resident in Israel, will not be harmed by the classification of such a trust as a foreign trust (in our illustration, a trust of foreign residents). Jacques was of course very happy with the news and he even praised his tax consultant for his professional and satisfactory response.

One fine day (which it became apparent afterwards was actually partially cloudy), Jacques decided to immigrate to Israel, inter alia, in order to gain an impression regarding the development of the hospital and to examine whether it was necessary to recommend to the trustee that he increase the amount of the donations from the trust.

When he arrived in Israel, Jacques asked the much-praised tax consultant whether his having immigrated to Israel could create problems for the trust. “Don’t worry” replied the tax consultant, with a haughty expression on his face, “since all of the members of your family are staying abroad, the trust is supposed to be a trust of foreign resident beneficiaries, and will continue to be exempt from taxation”.

However, after a further check that the consultant made, he got back to Jacques with a very sad expression on his face and had to report to him that the trust would not be considered to be a “trust of foreign resident beneficiaries” because in that type of a trust, the hospital is considered to be an Israeli beneficiary for all intents and purposes and therefore the desired classification would be denied to him.

“So what?” asked Jacques angrily, “Does the trust have to pay tax in Israel?”

All of a sudden, the tax consultant remembered the extravagant reliefs that the State of Israel grants to new immigrants, and reacted instinctively with a hesitant smile on his face that to the best of his memory, a trust that has become an Israeli trust following the creator of the trust’s immigration to Israel will continue to be exempt from taxation, at least for a period of 10 years.

Jacques agreed to swallow the bitter pill, however since he was beginning to lose trust in the tax consultant, he asked him to check the situation again. You guessed right, the tax consultant had to get back to Jacques again and looking nauseous and shaking, he had to tell him that the trust had also become Israeli following its creator’s immigration, the exemption would not be received unless all of the beneficiaries are new immigrants or returning veteran residents, and the hospital is neither of those. Once again, even in this case the legislator did not except a public institution.

After discussing matters with his family, Jacques agreed to swallow this pill as well, but he did still want to know what, all the same, it is possible to get if donating money to a hospital in Israel, apart from a feeling of satisfaction.

The tax consultant, who had begun to feel that his job was in danger, gave the only positive response that he could think of – “you can get a tax credit of 35% of the amount of the donation for a donation to a recognized public institution, this is a well-known rule that everyone is sure about, but let me double check”.

As expects, the tax consultant got back to Jacques, head bowed and dispirited and explained to him that a trustee in a trust, to differentiate from every other Israeli taxpayer, is not entitled to receive a tax credit for donations. “It’s the law, that is what appears in the Income Tax Ordinance” said the consultant, “and there is nothing that can be done”.

“Damn it” cried Jacques, “If that is the case then I have no choice other than to remove the hospital from the list of beneficiaries and the sooner the better”. That is what he did, the trustee removed the hospital from the list of beneficiaries, and informed the director general of the hospital whilst apologizing for the deterioration in the state of the patients that could be expected.

The tax consultant is looking for a new job, by the way.

All of the above, needs to be handled by the Tax Authority, which needs to provide the clarification that is required, if it chooses to do so.