Following substantial public criticism, Finance Minister Yuval Steinitz is expected to present a revised proposal to the Knesset's Finance Committee on Sunday for the handling of so-called "trapped profits."
These are profits that were earned in Israel by multinational firms after the companies had been provided incentives to invest in Israel.
An outcry arose after the original proposal set the tax rate on tax a company repatriates to its home country at a particularly low rate.
Steinitz is now expected to make the low tax rate conditional upon a commitment by the companies to invest half of the profits in Israel.
The proposal would result in the companies paying 6% to 17% tax on the profits instead of the normal rate of 10% to 25% provided by law for the encouragement of investment. Under Steinitz' proposal, the companies would have 5 years to reinvest an amount equal to the half of the profits they transfered out.
Finance Ministry officials expect the legislation, once passed, to lead to the payment of more than NIS 3 billion in taxes on the trapped profits next year. Steinitz apparently is confident the revised proposal will be approved, first by the Finance Committee on an expedited basis, then by the full Knesset. Opposition leaders Shelly Yacimovich of Labor and Zahava Galon of Meretz have conditioned their support for legislation encouraging payment of tax on trapped profits to a provision that would require companies to reinvest a portion of them in Israel.
Among the companies holding such trapped profits are Teva Pharmaceutical, Amdocs and Motorola. The firms have amassed an estimated NIS 125 billion in profits in conjunction with the law encouraging their investment here. The payment of tax revenues on the trapped profits would help Steinitz boost projected tax revenues in the 2013 budget and narrow the expected shortfall between tax revenues and government expenditures. Steinitz has argued that the profits have been sitting here for years and the situation would remain this way unless they were encouraged to free them up through tax breaks.
Ministry officials held two meetings on the issue last week. At the second meeting, on Thursday, it was resolved that the ministry would support the tax breaks on condition that a portion of the profits be reinvested here within five years.
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