FAQ: Taxation On Charity

(Click here to download the FAQ as a PDF)

Israel has charged charitable donors, particularly from certain Anglo-American geographic concentrations, customs, duties and VAT taxes. This practice has gone on for decades. After extensive negotiations with the government as well as some litigation and discovery, with the assistance of some of the largest and most prestigious law firms in Israel, we can now cut through the fog of propaganda and imprecision and establish some unpleasant and inconvenient truths.

1.     Why does Israel tax charitable donations?

First and foremost, Israel does not and never has had a law to tax charitable donations in any manner. Regrettably, there exists a long established culture of corruption and the Ministry of Finance concedes that “hundreds of millions of dollars” have been demanded from Anglo-American and European donors who have obligingly paid, ignorant of the fact that the demands were both baseless and illegal. This practice has gone on for at least 40 years if not longer. Apologists for Israel, and for the Jewish federations and philanthropies who paid donor funds to these non-existent and illegal demands occasionally content they are Gift In Kind taxes. It is vital therefore to emphasize and underscore that these excuses are totally false.

2.  What is the origin of this fraud?

According to Yaakov Ne’eman of Herzog, Fox & Ne’eman Law offices—and the only man who has served as both Minister of Justice and Minister of Finance—there has been a long standing report to the Minister of Finance on the value of charity donated. So as to bring the report in line with other ministerial reports, a tax equivalent value is calculated. No such tax however actually exist in the tax code, notes Prof. J. Gross of Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. law offices. Somewhere in the fog of Israeli history the customs authority began demanding actual payment and Diaspora Jews almost never questioned the bills received on official government letterhead.

3. What is the present day position of the Ministry of Finance?

In meetings and negotiations with the Deputy Minister of Finance for Customs and Taxation, as late as January 2017, the Ministry's position remains that while it concedes no such taxes exist nor ever existed, no specific law has been passed in the Knesset preventing demand of such duties. Therefore while not official practice of the Ministry, the Ministry sees no need to explicitly prevent further demands to be made on unsuspecting charities.

4. What is the position of the Prime Minister and Opposition Leadership?

The Parliamentary Attorney of the Prime Minister’s Office categorically rejected the excuse of the Deputy Minister of Finance that customs may be collected on anything not specifically protected by Knesset law. The PMO’s position is that from a parliamentary perspective it is not the responsibility of the Knesset lawmakers to pass 5000 bills covering every theoretical scenario and that Ministry of Finance’s excuse is both facetious and disreputable. To their credit, both Prime Minister Netanyahu and Labor Party leader Ehud Barak provided statements assuring Diaspora donors that this practice will be ended in the next Knesset. Opposition Co-Chairman Isaac Herzog refused to endorse any reform; Opposition Co-Chairman Tzipi Livni was the only Minister of Knesset to explicitly state that “We are entitled to these taxes from Diaspora donors”.

5. Has the tax been uniformly imposed?

Based upon discovery and confession of the Ministry of Finance, it seems that certain “inner circle” charities and organizations have been exempt from these taxation demands. The charities and federations of philanthropies consistently targeted tended to be the smaller, less politically connected entities. Certain countries were also targeted for their cultures of being obedient to government demands and not questioning authority.

6. What acts of retribution were taken against whistleblowers?

The Ministry of Finance engaged in a series of actions against whistleblowers of this matter. Particularly during the tenure years of Prime Minister Ehud Olmert and Minister of Finance Avraham Hirchson. In the case of Robin Hood Israel Foundation (RHIF), the Ministry of Finance terminated rights to passports (including U.S. passports), rights to bank accounts and driver’s licenses of certain directors after the publication of our Op-Ed in the Los Angeles Times.[1] At no time were any charges made or provided, at no time was a court consulted nor assigned. These were unilateral actions outside the judicial system technically permitted by the Ministry against those who “besmirch” the reputation of the State of Israel. It took just over 2 years for Herzog, Fox & Ne’eman Law firm to regain those basic rights for our directors. Parenthetically we note that Prime Minister Olmert and Minister of Finance Hirchson are currently both imprisoned. We do want to underscore that subsequent Ministers of Finance Yuval Steinitz (Likud) and Yair Lapid (Yesh Atid) refuse to take any corrective action during their tenure years. 

7. Why was our charity charged customs and VAT if a free trade agreement exists with the United States/Canada/United Kingdom etc.?

According to Deputy Minister of Finance for Customs and Taxation, while the Ministry honours Israel’s free trade agreements with the major nations, those exemptions only apply to purchased goods and not charitable donations. In other words, if one wrote on the customs manifest “girl’s dresses”, the items would be exempted but the donating philanthropies wrote instead “charity” which is not an approved item.

RHIF has formally approached the U.S., Canadian and British embassies to request that the term “charity” be included as an item in the next revision of the respective free trade agreements with Israel.

8. What interim agreements has RHIF succeeded in negotiating with Ministry of Finance?

While we leave a long term solution to this fraud to the Knesset and new Minister of Finance Kahalon to unravel, we recognize that is a multiyear process.

As immediate and interim solutions RHIF has secured the following concessions from the Ministry of Finance:

  • Robin Hood Israel Foundation will now be accepted to the “inner circle” of charities with protectia and will not be charged further duties.
  • In an attempt to prevent the embarrassment of class action litigation as well as U.S. Federal Courts, the Ministry is amenable to selected reimbursements for Diaspora donors with acceptable proof of payment. RHIF attorneys will be happy to walk your organisation through the process.
  • We are still taking names of organisations willing to join a class action lawsuit if necessary.

9. I have donated significant sums of my family’s wealth to my local federation of Jewish philanthropies. How did federation’s senior management either not know about this or do anything about it all these decades? Why did they knowingly pay false demands with my donations?

Candidly, there are no good answers to these questions. Federations are comprised with some of the most sophisticated attorneys, accountants, financiers in the Jewish community. It is beyond the realm of credibility to suggest proper due diligence was not repeatedly undertaken. It was a different time and era in Anglo-American Jewry, and we prefer to look forward from here.

[1] G. Pickholz, Biting the Hand that Feeds Them, At Home Abroad Series: An American Expatriate’s Dispatch, Special to the Los Angeles Times, January 2, 2006