Steinitz, left, and Netanyahu consult.
Steinitz, left, and Netanyahu consult. Photo by Tomer Appelbaum
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Israel Chemicals Ltd. will no longer be eligible for special tax treatment, after the Knesset Finance Committee yesterday approved a new provision that eliminates tax breaks to companies that have no relocation options.

The provision, an amendment to the Law for the Encouragement of Capital Investment, provides preferential tax rates to companies in the Negev and the Galilee. Under its terms, companies in the periphery will pay a reduced 10% corporate taxes rate in 2011 and only 6% in 2016. These rates will apply only to companies that have relocation options.

Since it is based in the Negev, ICL had argued that it should also be eligible for this tax break, but the Finance Ministry decided that the reduced tax rates would not apply to companies like ICL that have no choice but to maintain their production facilities in Israel.

The Finance Committee approved the amendment, which is part of the Economic Arrangements bill that accompanies the budget, after the treasury threatened to withdraw it if ICL were a beneficiary.

Controversy over the measure pitted Finance Minister Yuval Steinitz against Prime Minister Benjamin Netanyahu, who intervened in the matter but later backed down. ICL, which manufactures fertilizers, has been receiving NIS 500 million a year in tax breaks. It is these benefits that the treasury sought to eliminate. ICL, which is controlled by the Ofer family's Israel Corporation, unsuccessfully lobbied Knesset members in recent weeks to hold on to these tax breaks, warning that their elimination, which would take effect next year, would mandate job cuts in the Negev.

Despite an estimated NIS 2 billion in tax breaks that ICL has received in recent years, its workforce has only grown by about 300 workers. The company has distributed about NIS 10 billion in dividends to its shareholders over the past decade.

The controversy over tax breaks for ICL intensified yesterday when Prime Minister Netanyahu intervened in the matter. He proposed a compromise that would have given ICL continued tax benefits, raising Finance Minister Steinitz's ire. Knesset sources said that by their estimates hundreds of ICL employees are members of Netanyahu's Likud party, which may have influenced the prime minister's stance. Steinitz is also a Likud member.

Likud politicians and party officials, as well as ICL workers, have urged Likud members of the Knesset Finance Committee recently to oppose the Finance Ministry's initiative.

Finance Ministry representatives agreed to grant ICL tax breaks on the processing of potash but not on its production. ICL rejected this compromise and maintained pressure on the Prime Minister's Office and MKs to reject the Finance Ministry proposal. ICL offered to pay a somewhat higher tax rate of 12%, similar to what companies in the center of the country that have relocation options, pay, but this, too, was rejected.

During a tour of the fire-devastated Carmel region yesterday, Steinitz called Netanyahu to complain about his intervention in the matter and threatened to pull the provision from the Economic Arrangements Bill that accompanies the budget. At that point, Netanyahu backed off. Later in the day, the Finance Committee approved the version that excludes ICL from the tax breaks.