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Before increasing the tax burden of the general public, the state should first try to collect more tax from big business, urges Knesset Finance Committee chairman MK Moshe Gafni (United Torah Judaism ).

The government is unable to collect taxes properly and fully from the largest corporations. It is incapable of dealing with the lawyers and accountants handling the corporate giants, Knesset Finance Committee chairman MK Moshe Gafni (United Torah Judaism ) charged yesterday.

When setting government policy on taxes (and preparing its budget), the state views low collection from big business as the starting point, Gafni said during a committee session on the issue of corporate tax payments. But he urged that the government try to overcome its inertia before deciding to raise indirect levies such as fuel taxes.

The tax gambit of 'transfer prices'

The committee also discussed transfer pricing, the price at which a company sells a product or service to a related firm.

The transfer price agreed to between such firms basically determines how to divide up the profits between them, and the taxes they will both pay.

Since transfer prices between related companies, such as subsidiaries and parents or members of the same conglomerate, are not set through negotiations under normal market conditions, companies prefer to attribute a larger part of the profit to the company in the country with lower taxes - or in a tax haven where they sometimes pay no tax at all.

At the end of the session, Gafni said he would continue the discussion due to the importance of transfer pricing and effective corporate rates for Israeli tax policy.

The government shouldn't complain

"The inability to collect full taxes from large companies cannot be used by the government when it claims it has a hole in the budget and therefore has to raise indirect taxes," Gafni said.

"The government is lowering corporate taxes to the lowest levels in the world," he added. "On the other hand, the same government is unable to collect even this reduced tax from [the companies] due to tax shelters and the transferal of profits between companies and their subsidiaries in various places around the world."

According to the head of the Israel Tax Authority, Yehuda Nasradish, "Tax planning is not a disgrace, but is legitimate.

"A person who runs a business is allowed to plan his taxes as he sees fit in order to pay as little tax as possible. But we must draw the line between legitimate and illegitimate tax planing," Nasradishi said, adding that the Tax Authority was looking into the matters of transfer prices and tax shelters.