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CHAPTER FOUR "B": TRUSTEESHIPS

Definitions

75C. In this Chapter –

"means of control", "substantive shareholder", "relative" and "consideration" – as defined in section 88;

"trustee income" – income produced or accrued from trusteeship assets; "vesting" – transferring an asset to a trustee under a trusteeship, not for consideration;

"trust asset holding company" – a body of person that directly or indirectly holds trusteeship assets for the trustee;

"distribution" – transfer of an asset or of income by the trustee to the beneficiary or to his credit, while the trusteeship is in existence or because of its liquidation;

"creator" of a trusteeship – within its meaning in section 75D;

"trusteeship protector" – the person who – under the trusteeship documents – has the power to appoint and to dismiss the trustee, to give the trustee orders, or whose approvals are needed for the trustee's acts;

"trustee" – a person in whom assets or income from assets were vested, or who holds assets in trusteeship; wherever in this Chapter the word "trustee" appears, that means a trustee in this position in the trusteeship at hand; for this purpose vesting in a trust asset holding company shall be treated like vesting in the trustee, and a body corporate specified in Schedule One "A" shall be deemed a trustee; the Minister of Finance may add, by Order, bodies corporate to Schedule One "A";

"trusteeship" – an arrangement, under which the trustee holds the trusteeship assets for the benefit of the beneficiary in Israel or abroad, whether defined as a trusteeship under statutes applicable to it, or defined in some other manner;

"irrevocable trusteeship" – a trusteeship that is not a revocable trusteeship, on condition that a lawfully certified affidavit by the creator of the trusteeship and by the trustee was delivered to the Assessing Officer on a form and at the time prescribed by the Director, stating that it is an irrevocable trusteeship; 104

"revocable trusteeship" – a trusteeship for which at least one of the following holds true:

(1) it is possible to cancel it or to transfer or return the asset or the income to the creator, his spouse, his estate or to a held body of persons, all either directly or indirectly;

(2) the creator or his spouse are one or more of the beneficiaries, or the creator or his spouse can become a beneficiary;

(3) one or more of the beneficiaries is a child of the creator, who in the tax year has not reached age eighteen, or there is a possibility to transfer an asset or income directly or indirectly to his aforesaid child, on condition that the creator or his spouse is still alive;

(4) one or more of the beneficiaries are bodies of persons, which are not public institutions as defined in section 9(2), in which 10% or more of any means of control are held by the creator, by his spouse or by his child who has not yet reached age eighteen if the creator or his spouse is still alive, all either directly or indirectly (in this definition: held body of persons);

(5) the trustee or the protector of the trusteeship is the creator or a held body of persons;

(6) the trustee or the protector of the trusteeship is a relative of the creator, unless it was proven to the Director's satisfaction that there was a special justification for the relative's appointment as trustee, and that the appointment does not demonstrate any ability to direct the trustee's activity or to issue instructions on the matter of the trusteeship; for purposes of this definition: "relative" – as defined in paragraphs (1) to (3) of the definition of "relative" in section 88;

(7) the creator or his relative are able to direct the trustee's activity or to give him instructions on the way the trusteeship and its assets are managed, its beneficiaries are changed, or trust assets and trust income are distributed to beneficiaries, or his approval is required for acts of the trustee, or he is able to order the trusteeship to be cancelled or the trustee to be replaced, otherwise than for statutory grounds, all whether directly or indirectly;

(8) the identity of one or more of the beneficiaries is not known, or the identity of a direct or indirect holder of shares in a beneficiary that is a body of persons is not known, unless it is proven to the Assessing Officer's satisfaction that that beneficiary cannot be the creator, his spouse, the creator's child who has not reached age eighteen, or a held body of persons,

(9) the beneficiaries of a trusteeship have been replaced or new ones were added, without instructions to that effect having being included in the trusteeship documents;

(10) no certified affidavit was delivered on the form and at the time prescribed by the Director, as said in the definition of "irrevocable trusteeship"; "trusteeship created by foreign residents" – a trusteeship said in section 75I; "trusteeship under a will" – a trusteeship said in section 75L;

"foreign resident beneficiary trusteeship " – a trusteeship said in section 75J;

"trusteeship of Israel residents" – a trusteeship said in section 75G;

"beneficiary" in a trusteeship – within its meaning in section 75E;

"asset" – any property, real or movable, and also any prospective or vested right or benefit, all whether in Israel or abroad;

"trustee assets" – assets vested in the trustee or acquired or received by him, 105 also if held for him by a trust asset holding company, even if registered in its name;

"foreign resident", in respect of a creator – including a creator who was a foreign resident at the time of his death;

"Israel resident" – including an Israel citizen who is resident in an area, as defined in section 3A, and in respect of a creator – including a creator who was an aforesaid Israel resident or Israel citizen at the time of his death.

Creator of a trusteeship

75D. (a) A person who directly or indirectly vested an asset in a trustee is the creator of a trusteeship, and the following shall also be deemed creators:

(1) a person who directly or indirectly was a substantive shareholder in a body of persons, when the body of persons vested the asset in the trustee;

(2) a person who directly or indirectly held one or more categories whatsoever of means of control in a body of persons, when the body of persons vested the asset in the trustee, and he or his relative are beneficiaries of that trusteeship;

(3) if a trustee vested an asset or income in another trustee after the last of the creators died or after the beneficiaries of the trusteeship were changed, all without a provision to that end having been included in the trusteeship documents, then the beneficiary shall also be deemed a creator of the trusteeship under which the other trustee operates or in a trusteeship in which the beneficiaries were changed, as aforesaid, as the case may be, unless it was proven to the Assessing Officer's satisfaction that the beneficiary had no influence on the said vesting or on the change of beneficiaries;

(4) if the beneficiary was able to control or influence – directly or indirectly – the manner in which the trusteeship is managed, the trust assets, the designation of beneficiaries otherwise than by virtue of designation by the creator, the appointment or replacement of trustees, or the distribution of trust assets or trust income to beneficiaries, then the beneficiary shall also be deemed a creator;

(5) if, in a trusteeship created by foreign residents, an asset vested in the trustee was transferred from an Israel resident – he and his Israel resident relative being beneficiaries of the trusteeship – then the said Israel resident shall be deemed a creator of that trusteeship.

(b) If a trustee vested an asset or income in another trustee, then the creator who vested the asset or income in the trustee shall be deemed the person who vested it in the other trustee, and the trustee shall not be deemed a creator.

Beneficiary of a trusteeship

75E. A person entitled to benefit directly or indirectly from the trust assets or trust income is a beneficiary of the trusteeship, including the following:

(1) a person who will be entitled to be an aforesaid beneficiary when a condition is fulfilled or when a date prescribed in the trusteeship documents has been reached; however, if a person's rights are conditional on the demise of the creator or of another, then he shall not be deemed a beneficiary as long as the creator or the other beneficiary still are alive;

(2) a still unborn beneficiary; 106

(3) an indirect beneficiary through a chain of trusteeships;

(4) a person who directly or indirectly holds one or more of any category of means of control in the beneficiary, which is a body of persons other than a public institution defined in section 9(2).

Tax liability of trust income

75F. (a) Trust income shall be charged tax in the year in which it was produced or accrued.

(b) Trust income shall be treated as the creator's income or the beneficiary's income, as the case may be, as specified in sections 75G, 75I, 75J or 75L.

(c) The trustee shall be the person assessed and charged tax in respect of trust income and of acts with trust assets.

(d) The tax rate at which trust income shall be charged is the maximum tax rate prescribed in section 121.

(e) Notwithstanding the provisions of subsection (d), if a special tax rate is prescribed for a certain category of an individual's income, then trust income of the same category shall be charged at the tax rate so prescribed.

(f) A tax exemption for income limited by a ceiling shall not apply to trust income, and the provisions of section 11 and the provisions of Chapter Three in Part Three also shall not apply to it.

(g) Trust income or chargeable trust income shall be determined under the provisions of this Ordinance, also if the trustee is a foreign resident and also if the trusteeship is under foreign Law or if the provisions of foreign Law apply to it.

(h) Losses suffered by a trust (in this Chapter: trust losses) cannot be set off against the income of the creator or the beneficiary, and the tax that applies to trust income cannot be set off against the tax that applies to income of the creator or of the beneficiary, except when this Chapter explicitly makes a different provision.

(i) Losses by the creator or by the beneficiary cannot be set off against the trust income, and the tax that applies to the creator's and the beneficiary's income cannot be set off against the tax that applies to the trust income, excerpt when this Chapter explicitly makes a different provision.

(j) In respect of the calculation of capital gain on the trustee's sale of an asset that was vested in the trustee exempt of tax or not liable to tax, which was vested in him for no consideration, and in respect of the calculation of depreciation on a said asset, the original cost of the asset, the balance of its original cost and the day of the asset's acquisition shall be determined as they would have been for the creator, and the amount of depreciation shall be the amount the creator was entitled to deduct in respect of that asset.

(k) The place of residence of an unborn beneficiary shall be determined according to the place of residence of his parents.

Charging the trustee's income in the hands of the creator or the beneficiary

75F1. (a) Notwithstanding the provisions of section 75F(c), the following are assessable and chargeable to tax in respect of the trustee's income and in respect of acts with trust assets:

(1) in a trusteeship of Israel residents –the creator who was an Israel resident in the tax year, and if more than one creator was an Israel resident in the tax year, then only one of them (hereafter: 107 representative creator);

(2) in a trusteeship under a will that under section 75L is deemed an Israel resident –a beneficiary who is an Israel resident in the tax year, and if more than one beneficiary was an Israel resident in the tax year, then only one of them (hereafter: representative beneficiary); on condition that that all the conditions specified in subsection (b) , as the case may be, were complied with in the said trusteeships and the provisions in subsection (c) shall apply.

(b) (1) There is no Israel resident trustee in the trusteeship;

(2) the trustee in the trusteeship gave notice that he elected the application of the provisions of this section and declared that he undertakes to communicate to the representative creator or to the representative beneficiary, as the case may be, all the information he needs in order to have full information about the trustee's income or the trust assets;

(3) in respect of a trusteeship of Israel residents – all the creators, including the representative creator, gave notice of their choice of the representative trustee as assessable and chargeable and of the applicability of the provisions of this section;

(4) in respect of a trusteeship under a will that under section 75L is deemed an Israel resident – all the beneficiaries, including the representative beneficiary gave notice of their choice of the representative beneficiary as assessable and chargeable and that the applicability of the provisions of this section;

(5) notices said in paragraphs (2), (3) or (4) shall be submitted to the Assessing Officer on forms prescribed by the Director, together with the return under section 131(a)(5b)(4) for the first tax year in which the trustee and all the creators or the trustee and all the beneficiaries opted for the applicability of the provisions of this section.

(c) (1) The choice of the trustee and creator or of the trustee and beneficiary, as the case may be, shall also apply in the tax years after the first tax year as said in subsection (b)(5), and they shall not have the right to retract their decision if the representative creator or the representative beneficiary, as the case may be, is still alive and still is an Israel resident or as long as there is no Israel resident trustee of the trusteeship.

(2) The provisions of section 75F, other than subsection (c) thereof, shall apply to the representative creator or the representative beneficiary, as the case may be, all in the manner and in the amount that the trustee would have been assessed or charged, if not for the choice of the provisions of this section.

(3) The provisions of any statute on the tax payment, reporting, collection and penalties shall apply to the representative creator or the representative beneficiary, as the case may be, in respect of the trustee's income and in respect of the trust assets.

(4) A final tax debt of the representative creator or the representative beneficiary, as the case may be, may be collected from the trustee, and a final tax debt of the representative creator also from all the creators, also if he ceased being an Israel resident; for this purpose, "final tax debt" – as defined in section 75O(f).

(5) The provisions of section 75O(d) shall apply, except that "if the trustee" shall be replaced by "if the representative creator or the 108 representative beneficiary, as the case may be".

(d) Wherever this section speaks of a representative creator or a representative beneficiary, that is in the relevant trusteeship.

Trusteeship of Israel residents

75G. (a) (1) A trusteeship of Israel residents is a trusteeship in which – at the time of its creation – at least one creator and at least one beneficiary were Israel residents, and at least one creator and at least one beneficiary thereof were Israel residents in the tax year.

(2) A trusteeship that is not a trusteeship created by foreign residents and not a foreign resident beneficiary trusteeship shall also be deemed a trusteeship of Israel residents.

(3) Notwithstanding the provisions of paragraphs (1) and (2), a trusteeship under a will shall not be deemed a trusteeship of Israel residents.

(4) A trusteeship shall be deemed a trusteeship of Israel residents, whether it is a revocable or an irrevocable trusteeship.

(b) In a trusteeship of Israel residents the trust income shall be treated like the creator's income and the trust assets shall be created like the creator's assets.

(c) A trusteeship of Israel residents shall be deemed an Israel resident, also when the creator ceased being an Israel resident, and the trust income shall be treated like the income of an individual Israel resident and the trust assets like the assets of an individual Israel resident.

(d) In a trusteeship of Israel residents vesting in the trustee by an individual, carried out not for consideration, shall not be deemed a sale for the purpose of the provisions of Part Five.

(e) If a trusteeship became a trusteeship of Israel residents after one creator thereof became an Israel resident for the first time, a veteran returning resident or a returning resident, as said in section 14(a) or (c), then the provisions under sections 14(a) or (c), 16 or 97(b) or (b3), as the case may be, shall also apply to the trust income, in addition to the provisions of section 75F.

(f) Distribution of an asset of a trusteeship of Israel residents shall be charged tax or shall be exempt of tax for the purposes of Part Five, as it would have been if the asset had been transferred directly from the creator to the beneficiary; for this purpose the creator shall be deemed an Israel resident, even if at the time of the distribution he is a foreign resident; if a trusteeship had several creators, and if the transfer from at least one of them to the beneficiary would have been liable to tax, had it been carried out directly, then the distribution shall be liable to tax.

(g) The provisions of section 75F(a) to (i) and (k) and of subsections (b), (c) and (e) shall not apply to trust income in a trusteeship of Israel residents that is an irrevocable trusteeship distributed to an Israel resident beneficiary, and it shall be deemed the beneficiary's income on condition that all of the following hold true:

(1) the distribution took place before six months had elapsed after the end of the tax year in which the income was produced or accrued or up to the date for submission of the return for the said tax year, whichever was earlier;

(2) the income was included in the return submitted by the trustee under section 131 as distributed income, and it was not taken into account in the calculation of the trustee's income or chargeable income; 109

(3) the income was included in the return submitted by the beneficiary under section 131 for that tax year;

(4) the trustee and the beneficiary attached to their returns under paragraphs (2) and (3), as the case may be, a notice of the distribution and of their choice that the distributed trust income be deemed the beneficiary's income;

(5) if income was produced by or accrued from different sources of income, then it shall be deemed to have been distributed proportionally from each said source of income, unless the writ of trusteeship prescribed that the distributed income was earmarked for the beneficiary who received it.

(h) The provisions of section 75F and of subsections (b) to (h) shall not apply to a trusteeship of Israel residents that is a revocable trusteeship, in which there is only one creator who is an Israel resident, if the creator and the trustee gave notice of their choice that the creator be assessable and chargeable to tax for the trust income; for this purpose a creator and his spouse shall be deemed a single creator, provided the spouse is an Israel resident; a said application shall be submitted to the Assessing Officer together with the return under section 131 for the tax year in which the trusteeship was created; when such an application has been submitted, the following provisions shall apply:

(1) the creator shall be the assessee and the person liable to tax in respect of the trust income, and he must submit a return thereon under section 131 as long as the creator still is alive;

(2) the creator's final tax debt in respect of the trust income may also be collected from the trust assets and from trust income;

(3) the creator's and trustee's choice shall also apply in coming tax years, and they cannot withdraw their choice as long as the creator is alive and an Israel resident. The provisions of this subsection shall apply as long as the creator is an Israel resident.

(i) The provisions of section 100A shall not apply to a trusteeship of Israel residents on the day on which the creator ceases to be an Israel resident, as long as the trusteeship is an aforesaid trusteeship.

Trusteeship that ceased being a trusteeship of Israel residents

75H. (a) A trusteeship shall cease being a trusteeship of Israel residents from the date on which one of the conditions prescribed in section 75G(a) ceased to apply (in this section: the final day).

(b) If a trusteeship ceased being a trusteeship of Israel residents and became a foreign resident beneficiary trusteeship, then for the purposes of the provisions of Part Five the trust assets shall be deemed to have been sold to a foreign resident on the final day`.

(c) If a trusteeship ceased being a trusteeship of Israel residents and became a trusteeship created by foreign residents, then the provisions of section 100A shall apply on the final day, mutatis mutandis.

Trusteeship created by foreign residents

75I. (a) A trusteeship created by foreign residents is a trusteeship, all creators of which were foreign residents when it was created and in the tax year, or all its creators and all its beneficiaries are foreign residents in the tax year.

(a1) A trusteeship shall be deemed a trusteeship created by foreign residents, irrespective of whether it is a revocable trusteeship or an 110 irrevocable trusteeship.

(b) The provisions of section 75G – except for its subsections (a), (c) and (h) – shall apply to a trusteeship created by foreign residents, mutatis mutandis.

(c) A trusteeship created by foreign residents shall be deemed a foreign resident, and the trust assets shall be deemed assets held by a foreign resident and the trust income the income of a foreign resident individual; if the creators are residents of several foreign countries, then the trust assets shall be deemed to be held in proportional parts by individual residents of their creators' countries of residence, and the trust income shall be deemed to have been produced or accrued for individual residents of those countries, in proportion to the value of the assets vested in the trustee by each creator, as it was on the day of vesting.

Foreign resident beneficiary trusteeship

75J. (a) A foreign resident beneficiary trusteeship is a trusteeship in respect of which all the following held true in the tax year, on condition that the provisions of section 75G(a)(1) do not hold true for it and that it is not a trusteeship under a will:

(1) it is an irrevocable trusteeship; for purposes of this section a trusteeship shall not be deemed a revocable trusteeship only because of the provisions of section 75D(a)(3) or (4);

(2) all its beneficiaries are individual foreign residents, whose identity is known; for this purpose an unborn beneficiary shall be deemed a beneficiary whose identity is known;

(3) at least one of its creators is an Israel resident;

(4) if, at the time it was created, the conditions said in paragraphs (1) to (3) held true for it, then the following also held true –

(a) the trusteeship documents explicitly provide that no Israel resident beneficiary can be added;

(b) in a notice that the creator submitted under section 75P1 it was declared that in it there is no Israel resident beneficiary and no Israel resident beneficiary whose entitlement under the trusteeship is conditional on his ceasing to be an Israel resident, and that no beneficiary as aforesaid can be added to it.

(b) In a foreign resident beneficiary trusteeship the trust assets shall be deemed the beneficiary's assets and the trust income the beneficiary's income.

(c) A foreign resident beneficiary trusteeship shall be deemed a foreign resident, and the trust assets shall be deemed assets held by an individual foreign resident, and the trust income shall be deemed the income of an individual foreign resident; if the beneficiaries are residents of several foreign countries, then the trust assets shall be deemed to be held in proportional parts by individual residents of the beneficiaries' countries of residence, and the trust income shall be deemed to have been produced or accrued for individual residents of those countries, in proportion to their shares of the trust income and the trust assets.

(d) In respect of the provisions of the Ordinance, vesting a trustee in a foreign resident beneficiary trusteeship shall be charged tax, as it would have been if the asset had been transferred directly by the creator to the foreign resident beneficiary.

(e) A distribution to the beneficiary of a foreign resident beneficiary trusteeship shall not be deemed a sale for purposes of the provisions of 111 Part Five.

(f) Every year the trustee shall attach to the return he submits under section 131, on a form prescribed by the Director, a notice about every distribution made in the course of the tax year, including the names of the beneficiaries and the amounts distributed to them, as well as a declaration said in subsection (a)(4)b), but if the trustee does not have to submit a return under section 131 for that tax year, then he shall submit the said declaration to the Assessing Officer until April 30 of the year after the tax year.

Partnership that ceased to be a foreign resident beneficiary trusteeship

75K. (a) If one of the beneficiaries of a trusteeship became an Israel resident for the first time, a veteran returning resident or a returning Israel resident, as said in section 14(a) or (c), then the trusteeship shall cease being be a foreign resident beneficiary trusteeship; beginning with that day, the provisions of section 75G shall apply to the trusteeship, as well as provisions under sections 14(a) or (c), 16 or 97(b) or (b3), as the case may be, as they would have applied, if the income were produced directly by the beneficiary who became an Israel resident.

(b) If the trustee did not submit the notification and declaration said in section 75J(f) for a certain tax year, then it will be deemed that there was an Israel resident beneficiary in the trusteeship in that tax year and the provisions of section 75G shall apply.

(c) If the Assessing Officer concluded that – in spite of the creator's and the trustee's declarations – the conditions said in section 75J(a)(4)(b) were not complied with, or that the trusteeship is a revocable trusteeship, then the trusteeship shall be deemed not to have been a foreign resident beneficiary trusteeship from the beginning and the Assessing Officer shall assess the trust income accordingly; for the purposes of this section, a trusteeship shall not be deemed a revocable trusteeship only because of the provisions of section 75D(a)(3) or (4); if, when the said assessment is being made, the trustee has final assessments for preceding years, then the Assessing Officer may – notwithstanding the provision of any statute – assess the trust income in those years within two years after the end of the tax year in which he concluded as aforesaid.

Trusteeship under a will

75L. (a) A trusteeship under a will is a trusteeship for which all the following hold true:

(1) the trusteeship was created under a will;

(2) all creators of the trusteeship are testators who were Israel residents at the time of their demise.

(b) In a trusteeship under a will the trust income shall be deemed the beneficiary's income and the trust assets shall be deemed the beneficiary's assets.

(c) (1) If there is at least one Israel resident beneficiary in the trusteeship under a will, then the trusteeship shall be deemed an Israel resident, and the trust income shall be treated like an Israel resident's income and the trust assets shall be treated like assets held by an Israel resident.

(2) If there is no Israel resident beneficiary in the trusteeship under a will, then the provisions of subsections (c) and (e) of section 75J shall apply to the trusteeship. 112

(d) Vesting in the trustee in a trusteeship under a will and distribution to a beneficiary in a said trusteeship shall not be deemed sales for the purposes of Part Five.

(e) The provisions of section 75F and of this section, other than subsections

(d) and (g), shall not apply to a trusteeship under a will with only one beneficiary who is an Israel resident, if the beneficiary and the trustee requested that the beneficiary be assessable and chargeable to tax; for this purpose, a beneficiary and his spouse shall be deemed one beneficiary, provided the spouse is an Israel resident; a said request shall be submitted to the Assessing Officer as said in section 75G(h), and the provisions prescribed in paragraphs (1) to (3) of the said section shall apply, mutatis mutandis.

(f) The provisions of section 75G(g) shall also apply, mutatis mutandis, to trusteeships under a will.

(g) If under the trusteeship under a will at least one beneficiary becomes an Israel resident for the first time, a veteran returning resident or a returning resident, as said in section 14(a) or (c), and if in that tax year there was no other Israel resident beneficiary in the trusteeship, then – in addition to the provisions of section 75F – the provisions of sections 14(a) or (c), 16 or 97(b) or (b3), as the case may be, shall also apply to the trust income.

(h) If the beneficiary of a trusteeship under a will ceased to be an Israel resident, then on that date the provisions of section 100A shall apply, mutatis mutandis.

Vesting by a body of persons

75M. If a body of person vested an asset in a trustee, then the following provisions shall apply:

(1) the vesting shall be deemed a sale for purposes of the provisions of the Ordinance;

(2) the vested asset shall be treated like a dividend distributed to the individual shareholders, who directly or indirectly hold rights in that body of persons.

Distribution to the beneficiaries after the end of the trusteeship

75N. (a) If a trusteeship of Israel residents or a trusteeship created by foreign residents came to an end and if, after its assets were distributed, losses remained that had not been set off and which – had they been profits – would have been liable to tax in Israel, then the losses shall be deemed losses of the creator; if the trusteeship had several creators, then a proportional part of the losses shall be deemed the loss of each of the creators, according to the value of assets vested in the trustee, as it was at the time of the vesting.

(b) If a foreign resident beneficiary trusteeship or a trusteeship under a will came to an end, and if, after its assets were distributed, losses remained that had not been set off and which – had they been profits – would have been liable to tax in Israel, then the losses shall be deemed losses of the beneficiary; if the trusteeship had several beneficiaries, then a proportional part of the losses shall be deemed the loss of each of the beneficiaries, according to his proportional part in the distribution of the assets and the income, as it was during the four year period that ended at the end of the year in which the trusteeship ended.

(c) At the end of the trusteeship the trust losses shall be classified according to sources of income, as they were classified by the trustee, and the losses of the trustee transferred from previous tax years shall be 113 deemed transferred losses of the creator or of the beneficiary, as the case may be.

(d) In respect of the calculation of the capital gains byf a beneficiary to whom an asset was distributed and in respect of the asset's depreciation, its original price, the balance of its original price, and the day of its acquisition shall be as they would have been for the trustee, and the amount of depreciation shall be the amount which the trustee was entitled to deduct in respect of that asset.

Provisions on tax payments, collection, returns and penalties

75O. (a) The provisions of any statute on the payment of tax, on returns, collection and penalties shall apply to the trustee in respect of the trust income and the trust assets, except where an explicitly different provision is made in this Chapter.

(b) In a trusteeship of Israel residents a final tax debt of the trustee may be collected from each of the creators, even if he ceased being an Israel resident.

(c) The provisions of subsection (b) shall also apply, if the Assessing Officer found in respect of a certain foreign resident beneficiary trusteeship that – notwithstanding the creator's and the trustee's declarations – the conditions prescribed in section 75J(a)(4)(b) were not complied with.

(d) If the trustee has a final tax debt, then it can also be collected from every beneficiary, to whose credit distribution was made after the beginning of the tax year, in respect of which the debt exists, whether the trusteeship has ended or not; however, no more shall be collected from any beneficiary than the final tax debt or than the amount or the value of the assets he received in the distribution, whichever is less.

(e) The trustee of a trusteeship created by foreign residents, the trustee of a foreign resident beneficiary trusteeship, and also a trustee of a trusteeship created under a will in which there is no Israel resident beneficiary does not have to submit a return under section 131 about the trust income created or accrued abroad, also if the trustee is an Israel resident and if he submitted a return under section 131 about income produced or accrued in Israel.

(f) In this section, "final tax debt" – as defined in section 119A(d), and also fines imposed under this Ordinance or under the Taxes (Arrears Fine) Law 5741-1980.

General provisions

75P. (a) If a trusteeship had more than one trustee, then the trustees are jointly and severally liable for the tax applicable to the trust income.

(b) A trust asset holding company shall not be obligated to submit a return under section 131 or to pay tax in respect of trust income or in respect of trust assets that it holds for a trustee.

(c) The fact that a trustee is an Israel resident does not create a tax liability or an obligation to submit a return in respect of trust income, in addition to the obligations specified in this Chapter, such as would not exist if all the trustees were foreign residents.

Creator's obligation to give notice

75P1.(a) If, in a tax year, an Israel resident creator created a trusteeship or vested an asset or income from an asset in a trustee, then he must submit a notice to the Director within 90 days after creation of the trusteeship or after the vesting, as the case may be. 114

(a1) In respect of a creator who became an Israel resident for the first time or a veteran returning resident as said in section 14(a) the provisions of subsection (a) shall not apply during ten years from the date on which he became an Israel resident as aforesaid, on condition that – during the entire said period – he vested only assets abroad or income from assets abroad; at the end of the said ten years the provisions of subsection (a) shall apply, but the notice said there shall be submitted until April 30 of the first tax year after the end of that period; if the obligation to submit a return under section 131 applies to the creator, then the said notice shall be submitted when the return is submitted.

(b) The notice said in subsection (a) shall be submitted on the form prescribed by the Director, and the following shall be specified in it:

(1) the particulars of each of the creators and of each of the beneficiaries, the particulars of the trustee and of the trusteeship protector, if there is one, and the residential status of each of these;

(2) the particulars of the assets vested in the trustee or of which the income was vested in the trustee, including the original cost, the balance of the original cost and the day of acquisition, all as defined in section 88, the value of the acquisition and the date of acquisition within their meaning in Chapter Three of the Real Estate Taxation Law, and the balance of the acquisition value, as defined in section 47 of the said Law, as the case may be, as well as particulars of the income from the said assets that was vested in trustee;

(3) the date on which the said assets or income, as the case may be, were vested.

(c) (1) Without derogating from the provisions of subsection (a), a creator of a trusteeship created by foreign residents that became a trusteeship of Israel residents or a foreign beneficiary trusteeship because the creator became an Israel resident must submit a notice to the Director by April 30 of the tax year after the tax year in which the creator became an Israel resident, but if the creator is under obligation to submit a return under section 131 – at the time for submitting the return; a said notice shall be submitted on a form prescribed by the Director and the particulars said in subsection (b) shall be specified in it, but in respect of the particulars of the assets and income, as said in subsection (b)(2), the creator shall specify the particulars of the assets and income that he vested in the trustee during the five years before the tax year in which the creator became an Israel resident.

(2) Notwithstanding the provisions of paragraph (1) –

(a) a creator said in paragraph (1), who became an Israel resident for the first time or a veteran returning resident as said in section 14(a) shall not be obligated to give notice as said in that paragraph during ten years after the date on which he became an Israel resident as aforesaid, on condition that – when he became an Israel resident – the trustee in the trusteeship had only assets abroad or income from assets abroad and that during that entire period only aforesaid assets or income were vested in the trustee; at the end of the said ten years the provisions of paragraph (1) shall apply, but the dates for the submission of the notice said in that paragraph shall be in the first tax year after the 115 said period ended, as the case may be; if, during the said ten years assets in Israel or income from assets in Israel were vested in the trustee, then the provisions of paragraph (1) shall apply, but the dates for the submission of the notice said in that paragraph shall be in the first tax year after the said period ended;

(b) a creator said in paragraph (1), who became an Israel resident for the first time or a veteran returning resident as said in section 14(a) shall have to give notice as said in that paragraph at the times stated there, if – when he became an Israel resident – the trustee in the trusteeship had assets in Israel or income from assets in Israel; however, in respect of the particulars of the assets and of the income said in subsection (b)(2) the creator shall only specify the particulars of the assets in Israel and of the income from assets in Israel, which the creator vested in the trustee during the five years before the tax year in which the creator became an Israel resident.

Obligation of trustee to submit notice

75P2.(a) The trustee of a trusteeship shall submit a notice to the Director, on a form prescribed by the Director, on the following matters:

(1) the creation of a trusteeship under a will – within ninety days after provisions of the will on setting up the trusteeship were carried out;

(2) a change of the category of a trusteeship – until April 30 of the tax year after the tax year in which the category of the trusteeship was changed, but if the trustee is under obligation to submit a return under section 131(a)(5b) in respect of that trusteeship – at the time for submitting the return; the provisions of this paragraph shall not apply to the change in the category of a trusteeship to a trusteeship of Israel residents because one creator thereof or one beneficiary thereof, as the case may be, became an Israel resident for the first time or a veteran returning resident as said in section 14(a), on condition that – when he became an Israel resident as aforesaid – the trustee in the trusteeship had only assets abroad or income from assets abroad.

(3) the conclusion of a trusteeship of Israel residents, the conclusion of a trusteeship under a will that is deemed an Israel resident trusteeship under section75L(c)(1) or the conclusion of a trusteeship that at its conclusion held assets in Israel – until April 30 of the tax year after the tax year in which the trusteeship was concluded; however, if the trustee or the creator is under obligation to submit a return under section 131(a)(5b) in respect of that trusteeship – at the time for submitting the return; a said notice shall include the particulars of the assets that were distributed to beneficiaries because of the conclusion of the trusteeship, and in respect of a trusteeship that held assets in Israel at the time of its conclusion – particulars of the assets in Israel that were distributed to beneficiaries because of the conclusion of the trusteeship.

(b) The provisions of subsection (a) shall apply to a creator who elected to be assessable and chargeable, to a representative creator and to a representative beneficiary, as the case may be, according to provisions under sections 75F1, 75G(h) or 75L(e), mutatis mutandis.

Obligation of beneficiary to submit notice

75P3. (a) If an Israel resident beneficiary received an asset that is not money from a trustee in a distribution, even if the distribution is not liable to tax in Israel, then he must submit a notice to the Director until April 30 of the tax year after the tax year in which the said distribution took place, but if the beneficiary is under obligation to submit a return under section 131 – on the date forf submission of the return.

(b) A notice said in subsection (a) shall be submitted on a form prescribed by the Director, and on it the beneficiary shall specify the particulars of the asset he received in the distribution and the date of the distribution.

Restrictions on applicability

75Q. The provisions of this Chapter shall not apply to each of the following:

(1) a trust fund, as defined in section 88, and also a joint investment trust fund abroad;

(2) a benefit fund;

(3) a trusteeship created to secure a certain obligation;

(4) an estate manager, a Court-appointed custodian, a trustee in bankruptcy, an appointee under section 350 of the Companies Law, a company liquidator, a receiver;

(5) a religious endowment that is a public institution, as defined in section 9(2);

(6) a trustee as defined in section 102.

The Minister's authority

75R. The Minister of Finance may, with approval by the Knesset Finance Committee, prescribe as follows:

(1) provisions on granting credit to a trustee, creator or beneficiary in respect of taxes which the trustee, creator or beneficiary in that trusteeship paid to a foreign state on income that was charged tax both in Israel and abroad;

(2) provisions on how to calculate the trustee's chargeable income or the capital gain upon the sale of trust assets, including the matter of setting the original cost and the day of acquisition;

(3) provisions on taxing the trustee's income proportionally, according to the shares of individual foreign resident beneficiaries or individual foreign resident creators, on the conditions he prescribed, and the necessary adjustments, and for this purpose provisions on capital gains tax liability in respect of vesting, the amendment of assessments and the determination of income also after the dates prescribed in this Ordinance;

(4) conditions, limitations, provisions and adjustments for the purposes of this Chapter, including the matter of a trusteeship that ceased being a trusteeship of Israel residents, a trusteeship created by foreign residents or a foreign resident beneficiary trusteeship.

 

Miss Sahara Kaplan, will attend to you (in English) at Phone No. +972 3 546 88 88

In case of emergency, call Gabriel Hanner at his
cellular: +972 50 552 33 33

 
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