Blockchain Technology Takes Hold in Israel: Expert Take
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Blockchain technology - designed to reduce fraud and corruption - is being widely used by Israeli politicians and business.
The Government of Israel promotes the policy of open government with the understanding that recent innovations in communication and information technologies could allow a significant improvement in parliamentary democracy. This approach fosters informed policy-making processes, improves governmental services and has the potential to strengthen the trust between citizens and government.
The Israeli government funds, collaborates and partners with businesses as well as educational institutions in fostering and continuously developing innovative technologies and science. The Israeli Blockchain Association bridges the interaction between these parties concerning initiatives in Blockchain technologies.
A startup Blockchain technology company, CoaIiChain, is designing an interactive political platform that promotes the policies of an open government and eliminates the communication gap between the elector and the elected. During interactive discourse between citizens and government, the platform produces heat maps and graphs conveying the citizen's interests, allowing politicians, in turn, to respond in real-time to their constituent’s queries. The data collected by the system traces the frequency of corporate influence and payments made to politicians. The system also utilizes smart contracts for enforcing campaign commitments made by politicians – such as budgets proposals, policies. The launch of a beta version is scheduled for release in Q1 2018, and the full version & Blockchain integrated app by the end of 2018 according to the company’s website.
In Colombia, the Democracy Earth Foundation launched the digital, Blockchain-powered voting platform Plebiscito Digital (Digital Plebiscite) and worked with several civil society organizations to allow Colombians abroad to cast symbolic votes through the platform, and Sierra Leone has already held world’s first Blockchain-powered Presidential vote.
HighTech - drones and Blockchain
Israel ranks as the world’s tenth most innovative country and ahead of the US according to Bloomberg. This is because it has one of the highest percentages of engineers and scientists in the workforce, and the largest number of tech-startups producing cutting-edge technologies. A tech rise fueled by the smartphone electronics industry has significantly accelerated the use of unmanned aerial vehicles (UAVs) in commercial applications. Drones initially came into existence for the sole purpose of reaching and traversing areas where it was arduous for man to maneuver. Over time, their use expanded to military applications, for example to get a birds-eye view of complex operational missions and perform intelligence, surveillance and, reconnaissance – like the Iranian spy drone that Israel shot down in Syria. With time, demand, and further progressions, drones began to be used for a variety of other purposes - including for inspections, surveys, surveillance, security, delivery and wireless internet access.
Israel is a leading drone exporter. Airobotics, a startup company based in Petah Tikva, Israel, is the world’s first company to obtain authorization from the Civil Aviation Authority of Israel (CAAI) to fly commercial, fully unmanned drones in their nation’s airspace.
To track/secure commercial drone flights and deliveries, another startup company Applied Blockchain founded by Adi Ben-Ari, developed the Blockchain drone registry. “The Blockchain platform brings together drone operators, drone manufacturers and regulators together with a single source of truth. Flight path data captured by a drone during a flight can be uploaded onto the same shared ledger and represented visually on an interactive map. As this data is attached to a registered drone, aviation authorities can plot the flights of a specific drone, all drones of a given operator, or even all drones from a specific manufacturer, all on a single map and in real time to ensure the safe interoperation of UAVs within the airspace. This access to data is a paradigm shift from legacy-based systems, which inherently rely upon a single trusted party to maintain the data and provide the correct level of access to users” Ben-Ari explained.
National cryptocurrency & Fintech
As it has a technologically advanced market economy, Israel has joined the growing list of countries planning to launch a state-backed cryptocurrency. Cryptocurrencies are currently characterized as an asset/property by the Bank of Israel (BOI), Israel’s central bank. The Israeli Finance Ministry and BOI’s interest in promoting a state-backed cryptocurrency is aimed at minimizing risks of corruption, money laundering and tax evasion offenses. This is especially important, in light of recent corruption investigations that have resulted in formal charges brought against Prime Minister Benjamin Netanyahu’s aides.
Israel still has limited banking, regulatory and financial infrastructure due to its market size. Bank Hapoalim and Bank Leumi lead the industry in a duopoly with support from the local regulator. While Bank Hapoalim has embraced Blockchain technology, the Israeli Supreme Court decided that Bank Leumi was prohibited from limiting the bank accounts of companies associated with the crypto/Blockchain industry. The Supreme Court in Israel has also rejected the appeal of a law banning binary options.
Israel is a Fintech startup nation with many disruptive ventures such as Bancor, Zen, DAGlabs, which is developing technology to improve crypto scaling issues. While currently there are no initial coin offering (ICO) regulations, the head of the Israeli Securities Authority (ISA) has established a committee tasked with assessing the need for ICO regulations in Israel.
The Israel Tax Authority has classified a cryptocurrency as an asset/property (tax circular 5/2018), and therefore the sale of it becomes a taxable event as a barter transaction giving rise to a capital gains tax to be measured according to the value of the assets exchanged, according to Yitzchak Chikorel CPA, Tax Partner and the head of the International Tax Department at Deloitte Israel.
If a cryptocurrency is held by its owner as a capital asset (like an investment), then the gain will be classified as a capital gain and taxed at a rate of about 46 percent (23 percent capital gains tax, 30 percent dividends tax) for corporations and about 25 percent for individuals.
If the gain from the disposal of the cryptocurrency is considered to be part of business activity, such as mining, an individual will be taxed at progressive rates that may reach 47 percent, and corporations at 46 percent. Foreign investors may be exempt from tax based on tax treaties, in case there are no exemptions, they will be taxed as Israeli companies or Israeli individuals. In some cases, consideration received by an ICO issuing entity from the investors on the day of the ICO is not taxed on the same day but is deferred instead.
The views and interpretations in this article are those of the author and do not necessarily represent the views of Cointelegraph.Selva Ozelli, Esq., CPA is an international tax attorney and CPA who frequently writes about tax, legal and accounting issues for TaxNotes, Bloomberg BNA, other publications and the OECD.