Israel

How Facebook And Google Avoided Hundreds Of Millions In Israeli Taxes

After top tech companies were shown to be dodging taxes in several European countries, similar questions have now emerged in Israel. An exclusive from top Israeli business daily Calcalist.

Facebook founder Mark Zuckerberg
Facebook founder Mark Zuckerberg
Assaf Gilad

TEL AVIV - Israel's online economy rings up hundreds of millions of dollars every year. Yet, global Internet giants like Google, Facebook, Yahoo!, Amazon and eBay are exempt from paying taxes in the country.

For eBay and Amazon, the case is clear: Israelis are importing physical products (books, shoes, clothes) from abroad using the websites. As for Google, Facebook, Yahoo!, or even Microsoft, the situation is not as simple. These companies market to Israeli businesses virtual advertisement space aimed at Israeli consumers -- which raises the question of why they don't pay taxes in Israel.

The ads are distributed by the search engine or across an advertisement network powered by the Internet giants, built on millions of other websites that are not present in the search engine. The combined yearly advertising budget of Google and Facebook in Israel is estimated to be at about 1.5 billion Israeli shekels, or half a billion dollars, which is not subject to the VAT sales tax.

The Internet giants are exempted from taxes thanks to the fact that they are foreign companies that operate in Israel using servers located abroad. The Israeli tax authorities explain that the location of the server is the decisive factor of whether the company is to be taxed or not. However, Israeli courts over the past few years have determined that this factor is anachronistic -- especially when it arises in cases of criminal justice.

This was the case for the gambling website Chandler’s Casino, for which the court ruled that even though the website was based abroad, the decisive element was its targeting the Israeli community in the Hebrew language. The judge, Noga Ohad, even characterized the gambling site’s server being abroad as a way of “hiding.”

Attorney Guy Ofir is actively pushing for a policy of taxing the Internet giants, including Facebook and Google. “If the courts apply legal sovereignty and criminal responsibility for foreigners who enter the virtual territory of Israel by building websites in Hebrew, market in Israel and have direct contact with the Israeli economy, they should also be subject to civil obligations such as paying taxes”, he said.

The tax authorities say they respond to the issue on a case-by-case basis. “Concerning foreign companies that supply services via computers to Israeli citizens, the conventional approach is to examine the area of activity and its connections, rather than the location of the server,” said the tax authorities in response to questions from Calcalist.

This reaction begs the question: what has the tax authority been doing for the past eight years, ever since Adsense, Google’s advertisement network, started operating in Israel? The estimated loss to the country’s public coffers by exempting Google from taxes is at more than $300 million.

Facebook.co.il

The taxation question in the Facebook case is more complex and mysterious. When advertisers buy space on Facebook, they are not being asked to pay VAT. What makes things even more complicated than for Google is the fact that Facebook does not operate from Israel. However, it seems that the social network has opened a Ltd. Company under the name FB Israel Maintenance, with a physical address in Tel Aviv. According to the register of companies, they are under the full ownership of Facebook Ireland. The directors of this company include senior officials at Facebook, like David Spillane, the company's Chief Accounting Officer and Shane Crehan, an Irish citizen who is Head of International Finance at Facebook.

In response to Calcalist, Facebook said that the maintenance company of Facebook in Israel is not functional and the company does not owe sales tax in Israel: "The Herzog, Fox & Ne’eman law office gave us an address for the maintenance of Facebook without any activity in Israel.” Yet Facebook has 17 trademarks in Israel, and even pursues legal procedures in the country. Earlier this year, the company filed a legal claim to the Israeli Internet Association seeking an arbitration ruling on its demand to obtain the rights to the domain name Facebook.co.il.

The case of Google is very similar. It was revealed in the past that the search giant earns $500 million annually with advertising companies around the world -- but does not pay any VAT or income tax because the revenue goes directly to Google Ireland. At the same time, Google holds 137 patents and registered trademarks in Israel.

“It is unthinkable that a foreign company can register 137 trademarks in Israel, and at the same time say it does not have business activity in the country," says Ofir. "If Google uses its trademark in Israel and even protects it, it means the company has a commercial activity and ergo, has to be subject to VAT.” Google refused to comment.

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Pro-life and Pro-abortion Rights Protests in Washington

Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 Håfa adai!*

Welcome to Thursday, where new Omicron findings arrive from South Africa, abortion rights are at risk at the U.S. Supreme Court and Tyrannosaurus rex has got some new competition. From Germany, we share the story of a landmark pharmacy turned sex toy museum.

[*Chamorro - Guam]

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🌎  7 THINGS TO KNOW RIGHT NOW

• COVID update: South Africa reports a higher rate of reinfections from the Omicron variant than has been registered with the Beta and Delta variants, though researchers await further findings on the effects of the new strain. Meanwhile, the UK approves the use of a monoclonal therapy, known as sotrovimab, to treat those at high risk of developing severe COVID-19 symptoms.The approval comes as the British pharmaceutical company, GSK, separately announced the treatment has shown to “retain activity” against the Omicron variant. Down under, New Zealand’s reopening, slated for tomorrow is being criticized as posing risks to its under-vaccinated indigenous Maori.

• Supreme Court poised to gut abortion rights: The U.S. Supreme Court signaled a willingness to accept a Republican-backed Mississippi law that would bar abortions after 15 weeks of pregnancy, even in cases of rape or incest. A ruling, expected in June, may see millions of women lose abortion access, 50 years after it was recognized as a constitutional right in the landmark Roe v. Wade case.

• Macri charged in Argentine spying case: Argentina’s former president Mauricio Macri has been charged with ordering the secret services to spy on the family members of 44 sailors who died in a navy submarine sinking in 2017. The charge carries a sentence of three to ten years in prison. Macri, now an opposition leader, says the charges are politically motivated.

• WTA suspends China tournaments over Peng Shuai: The Women's Tennis Association (WTA) announced the immediate suspension of all tournaments in China due to concerns about the well-being of Chinese tennis player Peng Shuai, and the safety of other players. Peng disappeared from public view after accusing a top Chinese official of sexual assault.

• Michigan school shooting suspect to be charged as an adult: The 15-year-old student accused of killing four of his classmates and wounding seven other people in a Michigan High School will face charges of terrorism and first-degree murder. Authorities say the suspect had described wanting to attack the school in cellphone videos and a journal.

• Turkey replaces finance minister amid economic turmoil: Turkish President Tayyip Erdogan appointed a strong supporter of his low-interest rate drive, Nureddin Nebati, as Turkey’s new finance minister.

• A battle axe for a tail: Chilean researchers announced the discovery of a newly identified dinosaur species with a completely unique feature from any other creatures that lived at that time: a flat, weaponized tail resembling a battle axe.

🗞️  FRONT PAGE

South Korean daily Joong-ang Ilbo reports on the discovery of five Omicron cases in South Korea. The Asian nation has broken its daily record for overall coronavirus infections for a second day in a row with more than 5,200 new cases. The variant cases were linked to arrivals from Nigeria and prompted the government to tighten border controls.


#️⃣  BY THE NUMBERS

¥10,000

In the northeastern Chinese city of Harbin, a reward of 10,000 yuan ($1,570) will be given to anyone who volunteers to take a COVID-19 test and get a positive result, local authorities announced on Thursday on the social network app WeChat.

📰  STORY OF THE DAY

Why an iconic pharmacy is turning into a sex toy museum

The "New Pharmacy" was famous throughout the St. Pauli district of Hamburg for its history and its long-serving owner. Now the owner’s daughter is transforming it into a museum dedicated to the history of sex toys, linking it with the past "curing" purpose of the shop, reports Eva Eusterhus in German daily Die Welt.

💊 The story begins in autumn 2018, when 83-year-old Regis Genger stood at the counter of her pharmacy and realized that the time had come for her to retire. At least that is the first thing her daughter Anna Genger tells us when we meet, describing the turning point that has also shaped her life and that of her business partner Bianca Müllner. The two women want to create something new here, something that reflects the pharmacy's history and Hamburg's eclectic St. Pauli quarter (it houses both a red light district and the iconic Reeperbahn entertainment area) as well as their own interests.

🚨 Over the last few months, the pharmacy has been transformed into L'Apotheque, a venture that brings together art and business in St. Pauli's red light district. The back rooms will be used for art exhibitions, while the old pharmacy space will house a museum dedicated to the history of sex toys. Genger and Müllner want to show that desire has always existed and that people have always found inventive ways of maximizing pleasure, even in times when self-gratification was seen as unnatural and immoral, as a cause of deformities.

🏩 Genger and Müllner want the museum to show how the history of desire has changed over time. The art exhibitions, which will also center on the themes of physicality and sexuality, are intended to complement the exhibits. They are planning to put on window displays to give passers-by a taste of what is to come, for example, British artist Bronwen Parker-Rhodes's film Lovers, which offers a portrait of sex workers during lockdown.

➡️ Read more on Worldcrunch.com

📣 VERBATIM

I would never point a gun at anyone and pull a trigger at them. Never.

— U.S. actor Alec Baldwin spoke to ABC News, his first interview since the accident that killed cinematographer Halyna Hutchins on the set of the movie Rust last October. The actor said that although he was holding the gun he didn’t pull the trigger, adding that the bullet “wasn't even supposed to be on the property.”

✍️ Newsletter by Anne-Sophie Goninet and Jane Herbelin

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