Finance Minister Yuval Steinitz
Finance Minister Yuval Steinitz Photo by Emil Salman
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The Israel Tax Authority is recommending huge tax breaks worth tens of billions of shekels for multinational companies at the expense of the Israeli taxpayer.

The tax breaks would be for multinational companies which have accrued profits over the years in Israel, and now want to send them back to their home countries, as dividends. ITA head Doron Arbeli made the recommendation to Finance Minister Yuval Steinitz recently, and the two will discuss the issue again tomorrow with other senior finance officials.

Arbeli is suggesting that companies pay only 15% tax on their accrued profits, which comes to some NIS 15 billion out of a total NIS 100 billion in profits. This would be instead of NIS 30-40 billion that some senior tax officials say the companies really owe.

These officials insist the companies should be paying an average of 30% in corporate tax, along with a 15% tax on dividends for withdrawing the money from Israel - as the Law for the Encouragement of Capital Investments requires - though various tax considerations would lower this amount.

Steinitz's position on the huge tax break is similar to Arbeli's, though he might want the multinational companies to pay slightly more than Arbeli is recommending. It is possible that Steinitz will make a decision that requires changing the law, in which case the decision will have to be brought before Prime Minister Benjamin Netanyahu.

The decision would affect companies including Intel and Teva, which have accepted state aid under the Encouragement of Investments Law. The law has entitled companies to billions of shekels in state support over the years. It was recently amended to allow them to repatriate profits, but companies have not been able to act on the change because of the continuing debate over the tax rate to be imposed.

At present, these companies are required to pay 10% corporate income tax. If they opt to repatriate the profit overseas as dividends, they are required to pay another 15% to bring the total tax due to 25%.

The officials say that granting a tax break of a third would shave five percentage points off the 15% component. Companies would still be required to pay a 25% tax on any dividend as well.

The treasury debate comes as officials are scrambling to close a widening fiscal deficit. Thus, on one hand, they need to find ways to raise more revenues. On the other hand, they want to encourage companies to invest by offering globally competitive corporate tax rates.

The Finance Ministry said it intends to collect the taxes during 2012 and 2013.