Affiliates Tax Issues - Yair Binyamini - Affilicon Fall 2008


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Affiliates Tax Issues - Yair Binyamini - Affilicon Fall 2008

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