Treasury officials are debating what rate of tax Israel will impose on multinational companies that have accrued profits over the years in Israel and now want to take them overseas as dividend.
At stake is some NIS 100 billion in profits awaiting a verdict from Finance Minister Yuval Steinitz, who is likely to make a decision later this week. Treasury officials say the state could add NIS 15 billion to its coffers from the taxes at a time when state revenues are coming up short of forecasts for the year.
Steinitz reportedly tends toward granting the tax break, although perhaps less than officials are now proposing. Some officials are proposing to give a break equal to about a third of the taxes due, treasury sources said on Monday, a day after the discussion was first reported by TheMarker. They contend that neither the economy nor the government benefits from the accumulated profits, and the government must offer breaks to encourage them to pay out taxable dividends.
The tax debate relates to multinationals like Intel and Teva that have accepted state aid under the Encouragement of Investments Law, which has entitled companies - including some of the world's biggest - to billions of shekels in state support over the years. The law 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, companies are required to 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 of 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. They face a dilemma: On the one hand, they need to raise more revenues; on the other, they want to encourage companies to invest by offering globally competitive corporate tax rates. .
Among the companies with stores of accumulated profits are Teva Pharmaceuticals Industries, Check Point Software Technologies, Intel, Motorola and Amdocs. Their effective tax rate depends on what kind of tax and other benefits the company received in the past under the Encouragement of Investments Law. Teva, for example, paid an effective tax rate of 4% in 2011, down from 8% the year before. Check Point, by comparison, paid 20% annually over the past three years.
At Amdocs, the tax situation is more complicated. The company doesn't disclose its tax rate in Israel, but noted that in 2010 the domestic corporate tax rate was 25% and its effective rate was less than that.
Motorola and Intel's local units are wholly owned subsidies of American companies and don't report their tax rates publicly, but Intel is estimated to pay an effective rate of about 12%. Intel is now examining how to repatriate some NIS 12 billion in accumulated profits, on which it is now liable for a 15% tax payment, unless the rules change.
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