Israeli Families Prepare for Potential Inheritance Tax Legislation

While Israel currently has no inheritance tax, families are increasingly preparing for the possibility of future legislation, according to tax expert Harel Tov of KPMG Israel. Speaking at a Globes conference on family businesses, Tov used the example of the Japanese Takai family to illustrate challenges and strategies relevant to wealthy families both in Israel and abroad.

Tov recounted the story of Yasuo Takai, founder of Takifuji, who overcame a difficult childhood to build a fortune. After Takai's company went public, the family faced Japan's high inheritance tax rate of 55%. They sought legal loopholes, eventually structuring assets through a Dutch holding company and having a family member reside abroad to avoid taxation on foreign assets transferred to a foreign resident.

This strategy, Tov explained, highlights issues pertinent to Israeli families. As more families become international, with members living abroad, questions arise about residency, exit taxes, and the taxation of gifts to non-residents. While gifts within Israel are not taxed, the Israel Tax Authority may view a gift to an Israeli residing abroad as a taxable event.

The Takai family's case eventually reached the Japanese Supreme Court, which initially ruled against them, imposing a $1.3 billion tax. However, a subsequent ruling overturned this, resulting in a tax refund. This saga, Tov noted, underscores that tax planning must be realistic, adaptable to future changes, and that discussions about inheritance should begin within the family, not solely with tax authorities.