Israel Tax Authority May Charge VAT on Online Discounts and Gifts

An Israeli shopper, Yael, was recently required to pay Value Added Tax (VAT) on discounts and free gifts received with her online purchases, despite the total cost falling below the $75 tax-exempt threshold. The Israel Tax Authority initially calculated the taxes based on the full, original prices of the items and the declared value of the gifts, not the discounted price Yael actually paid. This resulted in her being charged an additional 118 shekels for two separate packages.

Yael argued that the discounts were part of a general website-wide Halloween sale and the gifts were not personal. However, her initial appeals were rejected because she did not provide sufficient proof that the discounts and gifts were not personal. The Tax Authority stated that while they recognize general discounts, they require documentation to verify this, such as proof of a site-wide promotion or a confirmation from the seller.

According to the Tax Authority's website, gifts sent without monetary compensation and certain personal discounts, like those given for previous order issues or from loyalty points, are subject to VAT based on their declared value. The authority reserves the right to reassess declared values. However, Yael contends her situation involved a broad promotional discount and free items, not personal incentives.

Yael plans to appeal again, armed with additional evidence, including screenshots of the promotional email she received. The Tax Authority has indicated that if she can prove the discount was a general offer to all customers and the gifts were part of that promotion, she may receive a refund. The confusion was exacerbated by the online store declaring the full retail price on customs declarations, rather than the actual amount paid by the customer.