Discontinuing residency even in the case of a relocation of less than 3 years (the Tsur verdict)

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Recently (October 2014) a precedent verdict was issued in the District Court by Justice Sokol relating to the question of discontinuing Israeli residency.

In this verdict, the appellant – Ms. Yael Tsur, received a proposal to work for a subsidiary abroad of the ZIM parent company where she worked in Israel. Ms. Tsur, together with her spouse who resigned from his work, and their children, left for Hong Kong and lived there for a period of less than 3 years (2 years and 8 months).

Although from the aspect of the number of days that she is considered an Israel resident as she stayed over 30 days a year and in total 425 days together with the two years prior to that, but from the aspect of the center of her life, whatever is determined between the two, Ms. Tsur proved, in the opinion of Judge Sokol, that the center of her life was transferred to Hong Kong.

 Despite the fact that the period of stay was fairly short (according to professional circulars that the Tax Authorities published on the subject and existing practice, the minimum period of stay abroad which would support the discontinuation of residency is at least 3 full years) and despite the fact that in Israel she held assets owned by the couple such as bank accounts, an apartment (which was leased out), pension funds, and despite the fact that ZIM itself (an Israeli company) is the one that sent the salary to Ms. Tsur during the whole period, and also deducted tax at source, the Judge decided to accept the appeal that Ms. Tsur was not an Israeli resident during the said years and that there was a discontinuance of residency.

In addition to significant aspects such as the family moving with her, the resignation of her spouse from his work, the registration of children in institutions in Hong Kong and more, Judge Sokol emphasized the fact that the offer of the work that Ms. Tsur received was to work abroad for 5 years, but this was surprisingly shortened due to a change of personnel in  management, resulted in a conclusion that Ms. Tsur intended to stay abroad for a continuous period which proves her wish to discontinue residency.

Judge Sokol also stated, that the intention to move the center of life abroad does not require an intention without any limit. A taxpayers who moves abroad and consequently his place of residency can do this for a limited period on condition that all the aspects exist in the new place. Also the intention of that taxpayers to return to Israel does not determine that the center of life actually changed if the significant aspects did not change.

An additional matter that Judge Sokol mentioned is the payment of Ms. Tsur’s salary by ZIM less the deduction of tax at source over the whole period, this states that this work does not point to a linkage to Israeli residency as the company does not have to determine whether the residency of the employee was discontinued or not, and certainly when Ms. Tsur requested that her salary be paid through the Hong Kong company, but ZIM refused.

It should be mentioned that the assessing officer avoided submitting an appeal to the Supreme Court as he feared he may lose, and this created a binding precedent on the subject.