Prime Minister Ariel Sharon personally intervened to clarify whether a tax exemption can be arranged for Yossi Meiman, who controls via the Merhav Group 25 percent of the Egyptian-Israeli EMG gas consortium, which is supposed to supply gas for electric power in Israel within two years. Meiman is asking for a tax exemption on profits because, he argues, EMG is a foreign company that is managed and controlled overseas, and he himself only controls 25 percent of its shares. Prime Minister Sharon intervened in the tax issue during a meeting held in his office last Thursday.
Yosef Paritzky, minister of national infrastructure, and Meir Sheetrit, minister in the Finance Ministry, took part in the meeting. Also present were Prime Minister's Office Director-General Avigdor Yitzhaki, and officials from Israel's Electric Corporation.
Participants addressed various issues connected to the utilization of the EMG gas pipeline.
Electric Corporation officials brought up the issue of taxes on Meiman's profits. Sharon asked Sheetrit to look into ways of reducing Meiman's tax obligations, with respect to profits accrued through the EMG pipeline. Meiman and associates lobbied for a tax exemption.
EMG is controlled by Meiman and Egyptian owners. Egypt's national gas company owns about 10 percent of EMG shares, and a group of Egyptian investors (headed by businessman Hussein Salam who is close to Egypt's President Hosni Mubarak) controls 65 percent of the company; Meiman owns the remaining 25 percent.
Under Israel's tax reform, which went into effect at the start of 2003, each Israeli citizen is obligated to pay tax on revenue accrued anywhere in the world, according to tax rates used in Israel. In EMG's case, this would entail a 36 percent tax on the company's profits. Meiman has asked for an exemption from this obligation.
Forecasts hold that the gas supply contract with Egypt will translate to $2 billion in revenue for EMG within a 15-year period. This means that the Merhav Group will earn $500 million in revenue during that time. Profits levels accrued in this project remain unclear; but experts assume that profits will be considerable.
Under the tax reform rules, Meiman is obligated to pay taxes if he has 10 percent control of a foreign company.
A few hours before the meeting with the prime minister on Thursday, Meiman's delegates had a meeting with tax officials. At the end of a long discussion, participants agreed that Meiman is to pay taxes at a level matching his share of EMG - that is, he is to pay taxes on 25 percent of the company's profits.
Later, during the meeting with Sharon on Thursday, Sheetrit was asked by the prime minister to clarify Meiman's obligations with tax officials. Only later did the minister learn that Meiman's associates had met earlier with tax officials, and that the authorities had turned down Meiman's request for a sweeping tax exemption.
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