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Of the $4 billion that the Wertheimers are getting from Warren Buffett for their family firm Iscar Metworking, the state is getting a quarter, or a billion dollars, in tax. But that isn't all, explains Income Tax commissioner Jacky Matza: Iscar will continue paying taxes as usual - if not on gains from future growth, then on the continuation of its present operations.

Buffett clarified that he means to leave Iscar be - its management and operations will remain just as they are. That means Iscar will remain at its Galilee home, employing many thousands of Israelis, and paying tax to the State of Israel.

From the closing date, Iscar will continue to pay tax on the scope of its current operations. The Income Tax Authority won't be able to touch any increase in profits resulting from Iscar's future growth, explains the tax commissioner.

Matza's position is surprising, because the state had been expected to get its billion-dollar windfall (from Iscar) and nothing more. After all, Iscar will now be held by a foreign company, namely Berkshire Hathaway, one might have thought.

Also, since Berkshire Hathaway is investing more than a billion dollars in the company, it automatically qualifies under the Investment Encouragement Law, which exempts investments of more than a billion dollars from tax.

But the actual transaction structure is highly complex: essentially Berkshire Hathaway is establishing an Israeli subsidiary that will assume ownership of the Iscar operations, not of Iscar itself. Technically, Matza says ? what the Wertheimers sold was not Iscar, but its operations.

The result is that the buyer (the Berkshire Hathaway subsidiary) is an Israeli company and will therefore continue to pay tax on profits.

Ahead of the transaction, Eitan Wertheimer confidentially asked the ITA for a pre-ruling on the tax aspect. The pre-ruling process has not actually been completed. It has been decided in principle that the Israeli subsidiary of Berkshire Hathaway will receive the same benefits as any company investing more than a billion dollars in Israel - but the tax break will only apply to Iscar's future growth, not to present operations.

The tax exemptions, on capital gains, dividends and income tax for ten years, are for ten years.