Israeli communications companies VAT exempt in their dealings with international tech firms

Following an eight-year dispute between the Israeli tax authority and a large group of Israeli communications companies, officials have concluded that the group is exempt from value added tax (VAT) in its agreements with international tech firms. The case started in 2010, when the communication companies issued a request for a tax exemption in their engagement with Google, considering that Google does not pay VAT on its transactions in Israel. In 2013, the tax authority refuted the claim and responded that it charges full VAT for the services provided to Google by Israeli companies. The authority soon faced criticism based on claims that companies not based in Israel – such as Google and Facebook – pay no VAT, while Israeli companies pay VAT on their transactions with them. This has ultimately resulted in the authority’s decision to retreat from its original position and it notified the communications group that the Israeli companies will be exempt from VAT on the services they provide to Google and other international tech firms.