In recent years, the increase in public capital on the stock exchange has increased considerably thanks to partnerships in the field of oil and gas exploration, which poses challenges due to the tax legislation in force in Israel. However, if this amendment is adopted, it will increase the effective tax debt of partners who are tax-exempt businesses under Section 9 (2) of the Israeli Income Tax Regulation (New Version), 5721-1961, who have declared their share of taxable income in the income of oil and gas partnerships as tax-exempt income. Meanwhile, the Israeli tax administration has just published a draft list of transactions to be reported for 2020, which provides that a tax-exempt company that declares its income from an oil and gas partnership as tax-exempt income must explicitly declare such a position on its tax return as a transaction subject to reporting. The main tax advantage for oil and gas partnerships, which must be taxed as a partnership, is that a partnership is tax-transparent and its revenues and expenses are taxable at the partner level. Therefore, in the early years of the oil and gas partnership, the high drilling and research expenses of the partnership and the use of losses incurred during those years will be prorated to its partners on the basis of their percentage of participation in the partnership. In addition to the apparent tax benefit, there are also some drawbacks. The Tribunal is currently considering the possibility of remedying this distortion in two initial applications for oil and gas partnerships that have been addressed to this problem. This is a large, favourable tax investment. For full disclosure, I have several of these drilling partnerships and I am very satisfied with their performance. One of the least understood tax strategies is to invest in an oil or gas partnership. If this is the case, the investor may benefit from a large deduction per year of investment and the possibility of obtaining tax-efficient investment income as long as the investment is profitable. In general, partnerships are not subject to income tax, as they are through pass units, of which each partner is taxed on its share of the partnership`s revenues. However, Parliament has given oil and gas partnerships the power to decide whether they should be taxed as a corporation or company.
However, until the completion of the tax review process, partners who held shares in the partnership in the fiscal year under review and who should have assumed the actual tax debt for that year may have sold their shares. As a result, new partners who were not interested in the partnership during the year under review may be held liable, during the year under review, for the taxes of shareholders who held interests in the partnership during the year under review. As a result, the statutory procedure creates a distortion where existing partners pay additional taxes for former partners who have benefited from the benefits of the partnership in a given year. Think about the current dialogue on the price of oil.