13 November, 2023
In today’s dynamic global trade landscape, import taxes have become subject to frequent fluctuations in tariff rates. Alterations in purchase taxes further complicate the situation. The result of these changes is a scenario where importers find themselves in a conundrum. They’ve already released products into the market, paying import taxes, only to have these tax rates subsequently reduced. This puts importers in the position of holding valuable inventory in a market, anticipating lower prices due to tax reductions.
For importers facing this predicament, a common question arises: Is it possible to request a refund of the previously paid import taxes from the customs authority?
To address this question, one must first understand the key factor in this process – the date taxes are due.
1. Purchase Tax and VAT on Imports:
The Israel Purchase tax laws stipulate that the due date of taxes on imported goods occurs when the goods are redeemed from the supervision of the customs authority, as outlined in Section 5b. Consequently, it’s essential to determine the exact date when goods are redeemed from customs authority supervision.
Section 14 of the customs ordinance provides clarification on this aspect. It specifies that imported goods are under customs authority supervision from the moment of importation until they are either delivered to be consumed domestically or exported. The moment of Importation occurs when the vessel carrying the goods enters the designated port for unloading (in maritime imports) or when goods cross the border (for non-marine imports).
In simpler terms, for purchase tax and VAT on imports, the decisive due date is the day the goods are delivered for consumption within Israel.
2. Customs Duties:
Regarding customs duties, Section 123B of the Customs Ordinance states that customs duties for imported goods subject to import declaration must be paid when the import declaration is submitted. Furthermore, Section 124 of the Customs Ordinance stipulates that customs duties are determined based on the prevailing rate at the time of payment.
In practical terms, this implies that if customs have approved an import declaration and the importer has moved the goods to their warehouses, the possibility of obtaining a tax refund becomes limited because the tax event has already occurred.
A case like this occurred in 2017. Toward the end of April 2017, the Minister of Finance issued an order that instantly abolished the 15% purchase tax on cell phone imports.
This sudden and unexpected tax cancellation left importers with a substantial inventory of taxed goods, with consumers expecting lower prices. Importers were caught between the pressure to lower prices and the fact that taxes had already been paid on these goods. In response to this situation, the customs director announced that importers could receive a 90% refund of the purchase tax if they returned the imported cell phones to their foreign suppliers and did not subsequently re-import the returned cell phones.
While the customs ordinance has undergone amendments recently to allow for full refunds of purchase tax and customs, there is an important caveat. Customs authorities will work to ensure that it does not create a revolving door where goods are exported and then re-imported without paying the canceled taxes.
What if Goods Are Still at the Port or in a Bonded Warehouse?
For importers who have submitted an import declaration approved by customs and have goods still at the port or in a bonded warehouse, the chances of obtaining a tax refund diminish. Customs authorities consider the tax event to occur when the goods exit customs supervision, whether for consumption or storage in licensed warehouses.
If the goods remain within a bonded warehouse, customs authorities continue to exercise control over them. Attempting to cancel the import declaration in this situation to return goods to customs control is generally not a viable option. Customs procedures explicitly state that import declarations should not be canceled when the intention is to circumvent legal provisions.
If you have already released a product into the market, and the applied tax has been subsequently canceled, your avenues for reclaiming the tax are relatively limited. Navigating the complex landscape of import taxes and customs procedures requires a solid understanding of tax regulations. Importers are encouraged to make informed choices to oversee their taxes within the dynamic global trade environment efficiently.
The content in this communication is provided for informational purposes only and is not intended to be comprehensive. It does not serve to replace professional legal advice required on a case by case basis. The firm does not undertake to update the information in this communication or its recipients about any normative, legal or other changes that may impact the subject matter of this communication.
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