Israel joins proposed digital economy taxation outline approval by the OECD

At a meeting of the Finance Ministry's management this morning, Finance Minister Avigdor Lieberman announced that after a discussion with the ministry's professionals, he approved in principle Israel's joining the proposed digital economy taxation outline, ahead of the outline approval by the OECD designated committee on June 30, 2021.
Lieberman: "The economy is becoming more and more global and we are required to take policy measures in cooperation with other countries. The Ministry of Finance will work to ensure that the Israeli economy meets international standards in various fields, including taxation and the environment, such as carbon tax.
The OECD program for the taxation of the digital economy is made up of two levels: The first pillar (Pillar 1) deals with the taxation of profits of international giant corporations by the countries whose residents provide services or products, when according to the outline, some of these profits They operate even if there is no physical presence in the country.
The outline that is being approved by the OECD's designated committee on June 30 has undergone a number of changes over the years and its final version is a significant improvement in Israel's interests compared to the first outline.
The second tier (Pillar 2) seeks to prevent tax planning aimed at eroding the tax base or shifting profits to tax havens of multinational corporations and thus put an end to the “race to the bottom” phenomenon of tax rates. According to the outline, a minimum tax rate will apply that will apply to the companies in these corporations.
The G7 Group (US, Canada, Germany, France, Italy, Japan and the UK) announced earlier this month that members of the group had agreed that this minimum tax rate would be at least 15%. Filler 2 is expected to apply to multinational groups with a total turnover of The participating countries will not be obliged to increase the tax rate applicable to the companies in their area to the minimum tax rate, and the parent company, or other companies in the group, will be required to complete the minimum tax, which they will transfer to the tax authority in their country of residence. Obtain approval from the ministers of the 139 participating countries.
The taxation of the digital economy is a major project of the OECD, which was the number one course of action of the BEPS (Base Erosion and Profit Shifting) program, which the OECD initiated in cooperation with the G20 Forum, which aims to address In tax planning of multinational corporations that include avoiding tax payments by eroding the tax base or shifting profits to tax havens.
This is a global phenomenon that threatens the volume of tax revenues and the fairness of tax payments in many countries. The need for a special program intensified due to the free movement of capital and the expansion of the digital economy, which created gaps in tax legislation that could be exploited to avoid tax evasion. The program, which began several years ago, involves 139 countries. The work with the OECD is led by the State Revenue Administration in the Chief Economist Division of the Ministry of Finance and the International Taxation Unit of the Tax Authority, with the assistance of the OECD's Finance Representative.