The new version follows the freezing of the voting process on a previous version by Prime Minister Binyamin Netanyahu last week, due to public criticism of the bill by the international community including the US, EU and UK.

If passed, this amendment to the Israeli Associations Law and the Israeli Income Tax Ordinance would prohibit foreign public funding of Israeli organisations that 'negate the existence of the State of Israel; incite to racism; support armed struggle against the State of Israel; support indictment of elected officials and IDF soldiers in international courts; call for refusal to serve the IDF and support a boycott of the State of Israel or its citizens'. 

In addition, any contribution from a foreign government to a public institution will be subject to a 45% income tax rate, unless that institution applies for a special exemption via a parliamentary committee and the Minister of Finance. This process will reportedly necessitate a parliamentary hearing for associations seeking a tax exemption.    

The proposed bill seeks to exclude 'respectable' organisations addressing welfare and education from these restrictions, by exempting organisations that receive Israeli government funding in parallel to foreign government funding from these restrictions and taxation.   

According to Israeli TV and newspaper analyses of the new bill, it is due to be discussed in 10 days' time in preparation for a first vote in Knesset. The organisations due to be completely banned from receiving foreign funding reportedly include Adalah, Yesh Gvul and Coalition of Women for Peace, whereas organisations slated to be taxed include Btselem and Physicians for Human Rights-Israel.  

Despite the claimed distinction between complete prohibition and taxation, in practice, a 45% income-tax rate would lead in effect to a cessation of funding by foreign governments, as EU member states are unwilling to permit transfer of half of their donations to the Israeli government. Hence, a very large range of non-governmental organisations in Israel is set to lose access to foreign public funding if this legislation passes.  

See below for an unofficial translation of the revised version of the bill:

[Unofficial translation]

Eighteenth Knesset

Initiators: MK Ophir Akunis; MK Faina Kirshenbaum

Bill regarding income of public institutions receiving contributions from a foreign political entity (legislative amendments) – 2011

1. Amendment to the Associations Law: In the Associations Law 1980, Clause 36a -

Amendment to Clause 36a:

(1)   In sub-clause (a), after the definition 'foreign political entity', add:

"Restricted association" – an association which includes, in its aims, or its actions, explicitly or implicitly, one of the following:

1.      Negation of the existence of the State of Israel as a Jewish and democratic State;

2.      Incitement to racism;

3.      Support for armed struggle, by an enemy state or a terrorist organisation, against the State of Israel;

4.      Support for indictment in international courts or in courts of foreign states of elected public officials, of IDF soldiers and of officers of government for actions they have carried out as a part of their role;

5.      Calls for refusal to serve the IDF or in National Service;

6.      Support for a boycott of Israel or its citizens;

(2)   After sub-clause (a) add:

"(1a) a restricted association shall not receive a contribution from a foreign political entity;"

(3)   In sub-clause (1b), after "association" add:

 "That is not a restricted association".

2. Amendment of the Income Tax Ordinance:

In the Income Tax Ordinance (hereafter 'the Ordinance'), in Clause 3 -

Amendment to Clause 3:

After sub-clause (j) add:

"(k) Income of a public institution that is a contribution from a foreign political entity shall be taxed at a rate of 45%; to this end, 'foreign political entity' – as defined in sub-clause 36a of the Associations Law 1980.

(l)     Despite the provisions of sub-clause (k), this clause shall not apply to a contribution to a public institution that is funded in parallel by the State of Israel.

(m) If the public institution is not funded by the State of Israel in accordance with sub-clause (l) above, and has not been so funded in the past three years, the public institution shall be permitted to submit to the Minister of Finance, with the approval of the Knesset Finance Committee, a request for exemption from the 45% tax rate as defined in sub-clause (k).

3. Amendment to Clause 9:

In the Ordinance, Section 9(2), sub-paragraph (a), after the words "society of people in whose control engagement of business" add:

 "With the exception of income that is a contribution from a foreign political entity as defined in Clause 3".

Explanatory Notes:

In Israel there are many organisations whose aim is to denounce the State of Israel in the eyes of the world and to turn IDF soldiers and officers into persecuted people, while tarnishing their good name. These organisations, which often call themselves 'human rights organisations,' receive funding from states and from unknown sources whose sole aim is to damage and to change the public political discourse in Israel, from within.

As part of the activity of these organisations one can point to their significant contribution to the findings of the Goldstone Report, participation in the service of indictments against Israeli officers and senior Israeli officials all over the world, attempts to label IDF soldiers as war criminals, encouragement of refusal [to serve in the IDF] and draft-dodging, and calls for an economic and political boycott of the State of Israel.

Some of the data available to the public regarding the funding of these organisations show that their funding comes from states or governmental authorities of the European Union, Britain, Switzerland, Norway, Spain, Germany and Ireland.

These are foreign states that interfere in the internal political discourse in the State of Israel, in order to create de-legitimisation of the actions of the IDF and its soldiers. Foreign money funds the activity of organisations which call themselves “Israeli” against the IDF.

This Bill aims to restrict this type of interference through support for Israeli associations.

Therefore, the Bill seeks to completely prohibit donations from foreign states for associations that negate the existence of the State of Israel; incite to racism; support armed struggle against the State of Israel; support indictment of elected officials and IDF soldiers in international courts; call for refusal to serve [in the IDF] and support a boycott of the State of Israel. In addition, the bill seeks to deny these organisations the right granted to them in Israel to an exemption from income tax, and to impose on them a tax of 45%.

Since many decent organisations, working for the benefit of Israeli society in many fields such as welfare, education and civil society, which are funded in parallel by the State of Israel and by foreign states, may be harmed by this amendment; this Bill seeks to exclude them from it.

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