Israel published its plans for taxation ICO
In Israel’s Tel Aviv, there are several issuers of primary token offerings (ICO), but most such projects are based in other countries. For the government, there is nothing good in this, as it loses not only income from taxes, but also the opportunity to represent Israel in the international arena as a place for doing business.
According to some experts, the Israeli Tax Authority (ITA) project, published last week detailing how it is possible to tax the revenues of the ICO, is an attempt by the Israeli government to induce the holders of tokens to remain in the Middle East.
“Until now, all Israeli ICOs have been managed from Switzerland or Gibraltar,” said Uriel Peled, co-founder of two Israeli crypto startups. These countries are convenient for conducting such a business at the expense of low taxes. Peled believes that ITA is taking steps to legitimize the business of companies funded by ICO to make the country as attractive to start-ups (ITA did not respond to a request for comments).
CoinDash, Matchpool, and Kik, who work in full or in part in Israel, moved their headquarters out of the country. In addition, Sirin Labs, which recently raised $ 157 million in ICO, is mainly based in Tel Aviv, but its website shows that the company is located in Switzerland.
One of the main reasons why the ITA circular may be attractive to token holders is that it implies delays when ICO revenues become taxable, and it also mentions the possibility of obtaining a special tax regime for crypto companies. According to Peled, we will see more companies officially working in Israel this year, but he refused to name them. One of its start-ups, the CoinTree advisory bureau, already recommends that its clients view Israel as a potential headquarters.
Pointing out that the main advantage of working in the country is the withdrawal of crypto-currency from the shadow area, Peled said: “The goal of the blockchain industry in Israel is not to go unnoticed. It has always been clear to us that new laws will emerge, and we want to work with the government to create rules that will be acceptable to everyone. ”
Understanding the magnitude
Consulting giant Deloitte helped ITA create a circular, providing extensive feedback, reports Yitzhak Chikorel of the international tax group Deloitte. Chikorel and other specialists were able to convince the authorities that it is very important to distinguish between different tokens – whether they are original currency tokens such as bitcoin, internal tokens created to finance and develop the platform on which they will be used in the future; or tokens, which are ordinary shares.
“The focus is on currencies that are the focus of the tax authorities,” Chikorel said, “our main goal was to link technology to tokens because they are inextricably linked.”
In addition, the circular makes it clear that the income will not be automatically taxed at the first receipt. Chikorel compared this with buying a gift certificate – in many places around the world the income from the purchase of a certificate is not taxed until someone spends it because only then will the company be able to determine the profit.
Likewise, when people start spending ICO-bought tokens to buy products on a new platform, the company will calculate what profit it has received after creating the software and inflow of customers.
The circular also stipulates that companies working with a blockchain unit will be able to apply for additional tax benefits in accordance with the Law on Support of Investments in Israeli Capital, which was developed to attract and retain high-tech companies.
Chikorel is convinced that the side projects will see the light: “ITA realized the scale and importance of the blockchain as an evolutionary technology that would allow the creation of a new generation of transnational corporations.”
However, there are those who are not sure that the tax legislation will convince the Israeli companies to transfer their income from the ICO to their home country. First of all, these are entrepreneurs who have always been negative about legislative innovations in this environment, although many say that such actions make the industry more transparent.
“At the moment I do not know of any Israeli company that has conducted or plans to conduct an ICO under the jurisdiction of Israel,” said Lior Jaffe, co-founder of Jelurida, an Israeli blockchain start-up on the Nxt and Ardor platforms. “And even if the new rules are adopted, almost everything will remain the same.”
Moreover, taxes are only part of the regulatory framework, and the Israeli Securities Agency (ISA), which regulates the flow of shares in the country, has not yet formally decided on how to classify tokens on the ICO. However, in September, a committee was established to study the measures taken by other securities regulators around the world, which should determine whether it should consider the ICO as part of its competence.
The regulators of some countries’ securities have imposed severe restrictions on the ICO. The Chairman of the US Securities and Exchange Commission said that most of the projects he is considering are securities and moved to the prosecution of several ICO founders. In this issue, even more, determined was Russia, and China even banned the ICO.
Perhaps hinting at tougher rules, the head of the ISA, Shmuel Hauser, said the agency’s desire to ban all companies that have a large stake in bitcoin trading on the Tel-Aviv Exchange (TASE). However, Jaffe said that Israel, as a small country with no global financial center (like London or New York), should try to keep its internal high-tech companies.
“The only correct way to do this is to declare that all revenues from the ICO are considered investments and therefore are exempt from taxes for several years,” he said, adding: “I think Israel is missing a huge opportunity to become friendly with the crypto-currencies.”