Media Centre

New Green Track Ruling Applications

7 February 2021

Dear Clients and Friends,

On January 31, 2021, the Israeli Tax Authority (the “ITA“) published two new green track ruling applications in the following matters (i) Interim ruling – a purchase transaction (form # 951), and (ii) approval of foreign company as employer company under Section 102 (form # 952, together, the “New Green Track Ruling Applications“). The New Green Track Ruling Applications are forms prepared by the tax authorities meant to address tax rulings which the tax authorities issue on a regular basis and which have become standard enough to justify preparing a set format. The intention is to create a quicker process to receive such tax rulings. We note that the Interim Ruling for Purchase Transactions is materially identical to a previous form which was used in WORD format.

This client update provides a summary of the New Green Track Ruling Applications.


1. Interim Ruling for a Purchase Transaction – taxation of awards in accordance with the provisions of Section 102 and Section 3(i) of the of the Income Tax Ordinance (New Version), 5721-1961 ((“Section 102”, “Section 3(i)” and the “Ordinance”, respectively)


1.1 Introduction

Under the capital gains route of section 102 (the “Capital Gains Route”), the tax benefits only apply if the awards (i.e. options, shares, RSU’s, etc.) and/or underlying shares received upon exercise or vest are deposited with a trustee for a period of not less than 12 months from the date in which the grants were made where the employer has chosen the Ordinary Income Route or 24 months from the date in which the grants were made where the employer has chosen the Capital Gains Route (the “Holding Period”).

However, when a company is sold and awards are cashed-out at closing, some of the awards may be cashed-out prior to the lapse of the Holding Period required in order to be eligible for beneficial tax treatment. When this occurs, the company may approach the tax authorities and request to receive a special approval to disregard the violation of the Holding Period provided that the consideration paid in the transaction is deposited with the trustee until the end of the Holding Period.

This tax ruling request is a request for an initial approval, to be issued prior to the closing of the transaction, to confirm that the payments to the trustee are exempt from withholding tax. Following closing of the transaction an additional request is filed to receive a final tax ruling to confirm that the violation of the Holding Period will not trigger adverse tax consequences as long as the net consideration is held by the trustee until the end of the Holding Period. The final tax ruling may address additional issues such as roll-over of awards, contingent payment etc. (the “Final Ruling“).


1.2 The Tax Arrangement and its Conditions

The form must be completed according to the specific terms of the transaction, including both the equity awards subject to the tax ruling and the details of the transaction, including the various types of considerations paid out and special arrangements. The form includes extensive disclosure requirement.

Within the framework of this tax ruling, the company declares that the employees cannot continue to hold the awards granted to them pursuant to the provisions of Section 102 and the transaction forced them to cash-out their awards in an involuntary sale.

The following is a summary of the main tax arrangement set forth in the ruling:

i. According to the tax ruling, the consideration for awards that were granted by the company will be transferred on the closing date of the transaction (the “Closing Date“) without withholding tax at source to the trustee and will remain in its possession until a Final Ruling is issued.

ii. Notwithstanding the foregoing above, the tax will be withheld at source by the trustee and/or the company following the Closing Date (excluding new awards, non-trustee awards and relocation awards). The trustee and/or the company will remit the tax that was deducted as stated above to the assessing officer within 45 days of the actual payment date.

iii. Insofar as the purchaser is a public company, if during the period between the Closing Date and the Final Tax Ruling, share consideration and/or new shares, received as a result of roll-over or conversion of awards, are sold or exercised,, the trustee and/or the company will transfer to the assessing officer the tax which the company believes should be deducted and the balance of the consideration, will be held by the trustee.

iv. Consideration paid for shares and/or vested awards in respect of which the Holding Period has lapsed as of the Closing Date, will be released to the employees, after withholding of the appropriate tax.

v. The tax ruling includes provisions for awards under the trustee routes of Section 102, the non trustee route of Section 102, Section 3(i), awards granted to relocation employees and awards granted within the 90 day period prior to the signing of the agreement.

If the Final Ruling is not issued within 90 days of the date of the interim tax ruling, and if extension was not received from the Tax Authority, the trustee and/or the company will deduct from the consideration/s received by the trustee in respect of awards for which as of Closing Date the Holding Period has not lapsed, tax at source according to Section 121 of the Ordinance (hence – ordinary income tax), taking into account the tax withheld at Closing, and will transfer it to the assessing officer in addition to any profits accrued on the amount of tax deducted.

To read the Hebrew version of the new green track ruling application as published by the ITA >> Click here.


2.Ruling for the approval of Foreign Company as an Employer Company

2.1 Introduction

Section 102 of the Israeli Tax Ordinance applies only to equity awards issued to employees and officers of Israeli companies. Section 102 may also apply to employees in Israel of a non-Israeli company if such company has a permanent establishment or an R&D center in Israel, if the tax authorities provide special approval.

The new green track tax ruling application sets forth the conditions under which the tax authorities are willing to view the non-Israeli company as an “employer company” under Section 102.

2.2 The Tax Arrangement and its Conditions 

The preliminary condition for this tax ruling is that the non-Israeli company must have an Israeli branch which is registered with the Israeli Companies Registrar and has a withholding file number with the tax authorities. Furthermore, the branch declares that it files with the assessing officer reports regarding its business in Israel and pays tax on the gains derived from its operations in Israel.

The following is a summary of the tax arrangement set forth in the ruling:

i. The Israeli branch will be considered as an “employer company” as defined in section 102(a) of the Ordinance provided that, during the period between the grant of the awards to the employees of the branch and until the realization date of such awards by the employees, the foreign company will operate its business in Israel through the branch and will file reports with the assessing officer.

ii. Upon becoming entitled not to file reports to the assessing officer, and within 15 days, the branch will send a written notice to the tax authorities and the tax ruling will be canceled immediately and the awards granted after the date of the notice will be subject to tax pursuant to Section 102(c) of the Ordinance, the non-trustee route.

iii. The gain from the awards will be deemed income produced in Israel. In addition, the employees will be deemed Israeli residents until the exercise date, in all matters pertaining to income from the awards contemplated herein.

iv. In calculating the gains and the tax amount, no deductions, offsets, exemptions, spreading of profit and/or discounted tax rate and/or credits on applicable tax, including from foreign taxes, will be granted, nor shall they be subject to the provisions of Sections 94b, 101 and 100a of the Ordinance.

v. The shares subject to the tax ruling, the employees of the branch, the foreign company, and the trustee shall be subject to all of the conditions set out in Section 102 and the rules promulgated thereunder.

To read the Hebrew version of the new green track ruling application as published by the ITA >> Click here.

Please note that the New Green Track Applications includes additional terms and conditions which were not fully detailed herein.

Please do not hesitate to contact us with any questions or if you require any clarification regarding any of the matters above.



Herzog Fox & Neeman


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