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Affiliates Tax Issues - Yair Binyamini - Affilicon Fall 2008
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Affiliates Tax Issues - Yair Binyamini - Affilicon Fall 2008

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  • 1. Affilicon 2008: Israeli and International Tax Aspects of Affiliate Marketing Yair Benjamini, Adv. Yigal Arnon & Co. Law Offices
  • 2. Should Tax be paid on Affiliate Marketing Profits?
    • Income Tax is paid on any business profits of an Israeli resident individual or Company
    • Value Added Tax is paid by any business operating in Israel
    • Is Affiliate Marketing a business?
  • 3. Common Questions
    • If I receive payments in a foreign bank account, are they subject to tax in Israel?
    • If I keep the funds in Paypal, will they be subject to tax even if I don’t withdraw them?
  • 4. Enforcing the Payment of Tax on Online Profits
    • The US and the UK classify Affiliate Marketing as a Business Activity.
    • The US Experience –
      • Ebay imposes Withholding Taxes.
      • Google Adsense Withholding Taxes.
      • Ebay Seller lists provided to IRS.
  • 5. The Invasion of the Robots
    • In 2006 the UK tax authorities announced that they were using a “tax robot” to locate VATable suppliers operating on eBay.
    • In August 2007 Swedish Skattemyndigheten (tax authorities) clamped down on the Internet affiliate industry through the use of a software program called ECEyes.
  • 6. Expenses and Utilization of Losses
    • An Unregistered Business, which does not duly keep accounting books, may not utilize losses for income tax purposes (carry forward and lateral offsetting).
    • For VAT purposes – a business granting services solely to foreign residents can receive VAT returns.
    • Who is the recipient of the Service ? Is the Dealer eligible for Zero-rated VAT?
    VAT Offset and Losses
  • 7. Common Affiliate Models Rev Share
  • 8. Common Affiliate Models CPA
  • 9. Timing of Losses Vs. Profits
    • Initial Investment (e.g. PPC) is possible, however the timing of the profits corresponds with the expenses.
    • The profits may accrue during several tax years after the investment is made.
    Rev Share CPA
  • 10. Corporate Taxation
    • A corporation will be subject to tax in Israel, if:
      • It was incorporated in Israel; or
      • It is Controlled and Managed in Israel;
    • Therefore, a Foreign Corporation will be subject to tax in Israel if it is Controlled and Managed in Israel
  • 11. Control and Management
    • Company must not be controlled and managed in Israel
    • Controlling and managing a Foreign Country from Israel without paying tax in Israel is a criminal offence
    • Control and management can be exercised anywhere outside of Israel and not only in Country of Incorporation.
  • 12. Control and Management
    • Main tests for determining “control and management”:
      • Place of the Board of Directors.
      • Place of Strategic Decision Making.
      • Level of decision making carried out in Israel.
      • Additional circumstances
  • 13. Recommendations for Foreign Companies
    • Foreign Partner or Partners.
    • Allows foreign Control and Management
    • Saves Tax at a Corporate Level – defers tax on disbursements.
  • 14. Disclosure to Authorities
    • Anyone holding an interest in a foreign corporation must file a tax return.
    • If the Corporation is in a “tax haven” (where tax is lower than 20%) must file a special report.
  • 15. Withholding Obligations
    • An Israeli Resident Company – whether incorporated in Israel or Controlled and Managed in Israel, has withholding obligations for Income Tax Purposes.
    • Some US companies demand a W-8 form from foreign affiliates or affiliate companies.
    • Unfortunately, Israel does not have such a simple procedure.
  • 16. Thank you for your patience!
    • For further information contact Yair Benjamini at Yigal Arnon & co.
    • [email_address]
    • 03-608-7850