Israel's Draft Circular on the Digital Economy and Permanent Establishment

The Israeli Tax Authorities (ITA) issued a draft circular on permanent establishment (PE), corporate tax and value added tax (VAT) issues for foreign companies supplying digital services to Israeli customers via the internet. The draft circular is open for public comment, and no date has been indicated for the application of the provisions. The key aspects of the circular are summarized as follows.

A PE may be deemed constituted in Israel when a foreign supplier has a significant digital pre…