Your Taxes: Calling US and French immigrants to Israel

The wandering people often has tax links in more than one country. Below we report on some Israel- related tax happenings in the USA and France.

USA - war relief available:

The Internal Revenue Service has announced new relief for taxpayers affected by terrorist attacks in Israel. In practice, this includes US immigrants (Olim). In short, US returns and tax payments for 2023 and 2024 are now due next year on September 30, 2025 (See IR-2024-252, Oct. 1, 2024). Because the war is now into its second year, an earlier IRs Notice (2023-71) was also extended,

According to the Internal Revenue Service (IRS) announcements, the IRS is providing relief to US taxpayers who, due to the terrorist attacks, may be unable to meet a tax-filing or tax-payment obligation or may be unable to perform other time-sensitive tax-related actions. 

The following types of US taxpayers are “affected taxpayers” with respect to the terroristic action eligible for the relief:   (1) Any individual whose principal residence and any business entity or sole proprietor whose principal place of business is located in the State of Israel, the West Bank or Gaza (covered area); (2) Any individual affiliated with a recognized government or philanthropic organization and who is assisting in the covered area, such as a relief worker; (3) Any individual, business entity or sole proprietor, or estate or trust whose tax return preparer or records necessary to meet a deadline for postponed acts are located in the covered area; (4) Any spouse of an affected taxpayer, solely with regard to a joint return of two married individuals; and (5) Any individual visiting the covered area who was killed, injured, or taken hostage as a result of the terroristic action. 

Any taxpayer acts that are due to be performed on or after September 30, 2024, and before September 30, 2025, are postponed until September 30, 2025.  These acts include, but are not limited to: (a) Filing any US return of income tax, estate tax, gift tax, generation-skipping transfer tax, excise tax (other than firearms tax), harbor maintenance tax, or employment tax; (b) Paying any US income tax, estate tax, gift tax, generation-skipping transfer tax, excise tax (other than firearms tax), harbor maintenance tax, or employment tax, or any installment of those taxes; (c) Making contributions to a US qualified retirement plan; Filing a petition with the US Tax Court; (d) Filing a claim for credit or refund of any US tax; and (e) Bringing suit upon a claim for credit or refund of any US tax.

The above is based on IRS announcements. For more details, consult your US CPA. 

France – treaty relief available:

We are indebted to Xenia Lordkipanidzé and Clement Pere of The Paris law firm Overshield Avocats for the following item.

The Toulouse Administrative Court of Appeal ruled in 2022 that taxpayers domiciled in Israel were entitled to claim the benefit of the France-Israel tax treaty, even though, being "new residents", they were exempt from tax in Israel on their foreign income, for the first ten years.

Indeed, the Court of Appeal ruled that this tax treaty provision was intended only to exclude from the status of resident of a State persons who are subject to tax in that State only on income from sources located in that State and for reasons unrelated to the existence of a personal link with that State. In the case at stake, the treaty was therefore applicable, as the persons concerned could be taxed in Israel on their Israeli-source income, because of their personal ties with that State. Their French-source pensions were thus not taxable in France under the tax treaty, nor in Israel.

This solution is in line with the OECD comments, which state that this apparently restrictive wording must be interpreted  "in the light of its object and purpose, which is to exclude persons who are not subjected to comprehensive taxation (full liability to tax) in a State”. Taxpayers subject to taxation, but fully or partially exempt from tax in their residence State, especially on a temporary basis, should therefore be able to claim the tax treaty protection.  

The French tax authority did not appeal. While this decision is acclaimed by practitioners, its confirmation by the French Supreme Court would be welcome as other French cases dealing with different tax regimes in France and Italy may need to be taken into account.

For further details please contact French tax specialists Xenia Lordkipanidzé, Attorney at Law – Partner at email: xlo@overshield-avocats.com and Clément Pere at email:  c.pere@overshield-avocats.com.

As always, consult experienced tax advisors in each country at an early stage in specific cases.

Leon@hcat.co

The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd