Israel to Levy New Taxes on Google, Facebook in Policy Shift

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  • Measure meant to level playing field with local businesses
  • Push to tax Internet companies part of worldwide campaign

Israel has expanded its definition of who must pay taxes on commerce, targeting digital multinationals such as Facebook Inc. and Google that critics say get a free ride.

Because much of today’s trade is carried out on the Internet, a foreign firm may now be considered a “permanent establishment” and subject to tax even if most of its presence is virtual, the Israel Tax Authority said in an e-mailed statement. The authority said Internet multinationals will be required to pay value-added tax, which is 17 percent for Israelis.

While the authority didn’t mention any companies by name, domestic critics have singled out Facebook and Google when arguing that the government’s failure to fully tax Internet companies gave the multinationals an unfair advantage over local businesses. Lawyer Guy Ophir recently paid to float a blimp outside Google offices that called on Finance Minister Moshe Kahlon to tax the company.

The new taxes, which take effect immediately, will eventually add hundreds of millions of shekels a year to state revenue, the authority said. A Google representative in Israel couldn’t immediately be reached for comment. Facebook “pays taxes according to the law in every country it operates, including Israel,” a spokeswoman said via e-mail.

Although Israel’s relatively small population of 8.5 million means the new taxes won’t clobber the international giants, they build on broader efforts worldwide to level the playing field between foreign Internet companies and local commerce. Russia is pushing to raise taxes on U.S. Internet companies to help its local industry and governments across Europe and beyond are trying to extract more revenue from Google, Apple Inc. and other multinationals with increasingly complex billing and ownership structures.