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

RHIF appeals to Finance Minister Lapid for fair taxation laws

RHIF’s Taxation on Charity in Israel fights for the right for charities in Israel to have fair taxation laws. 

A few years ago, generous US donors send charitable gifts, including a shipment of teddy bears meant to comfort children in Israeli children’s hospitals suffering psychological trauma caused by terrorist rocket attacks. Much to our outrage the goods never reached the intended recipients because the Israeli tax authorities assessed a non-statutory tax on the teddy bears and the other donated items. On behalf of RHIS, former Finance Minister and Justice Minister, Yaakov Neeman appealed to the Minister of Fincance, Yair Lapid, to get the tax on charitable donations revoked. Sadly, appeal was to no avail. Below is a letter from RHIF’s Attorney A Aaron, Esq to Mr. Lapid summarizing the case. 

September 13, 2013 

 Dear Minister of Finance Lapid, 

I am writing to you and a host of others on behalf of my client, the Robin Hood Israel Foundation Charity. It seems that we have arrived at the latest chapter in the ongoing saga of the case of Teddy Bears that laid the golden eggs. 

The story begins in 2006 when a shipment of charitable donations from the Beverly Hills Jewish community for the children's hospitals of Israel was illegally assessed a tax by the authorities at Ben Gurion Airport. Please see the attached story from the Los Angeles Times, dated January 2, 2006.

To summarize the story- US donors sent charitable gifts to Israel, among the gifts were teddy bears specifically requested by the Misrad Harvacha for the children's hospitals. Israeli tax authorities assessed tax. High level Israeli government officials expressed outrage. The goods never reached the intended recipients.

This story recurs in 2009 and again the Israeli taxation authorities assess a tax on the teddy bears (and the other donated items) This time my client engaged former Finance Minister and Justice Minister, Yaakov Neeman to advocate of behalf of the conduit charity, Robin Hood Israel Foundation. 

Adv. Neeman's firm was able to negotiate the demand of the taxing authorities down even though neither his firm nor the taxing authorities could point to a relevant law that taxed charitable gifts. There was and is no statutory basis for this tax. It seemsthe tax authorities were looking for a way to extort money from innocent donors simply because they could. To recap, in their unbridled enthusiasm to exert an unlawful use of power, the authorities wanted tens of thousands of Shekels for a tax that did not exist.

Current Israel Prime Minister, Benjamin Netanyahu, is quoted in the LA Times story; "There never has been such a law passed in any Knesset, and there never will be such a law passed in any Knesset..."

As in 2006, none of these gifts- the Teddy Bears meant to comfort children suffering psychological trauma due to terrorist rocket attacks- reached their intended donors, nor cleared airport customs for release. We are informed the teddy bears ended up in the homes of the tax authorities staff. To quote the representative of the English Speaking Residents Association of Israel (ESRA), "it was like being mugged on the subway by your own kin."    

Attorney A Aaron, Esq