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The Israel Tax Authority is celebrating what is being described as an impressive victory in its struggle with business baroness Shari Arison. It announced over the weekend that Arison would pay between $80 million and $100 million in taxes on profits from selling $1 billion worth of shares in Carnival Cruise Lines, the company owned by her family.

Arison had been close to a deal in 2003 to pay less than $20 million. At the time she argued the deal had been conducted abroad and since she held the stock through a foreign trust, she shouldn't have to pay any Israeli tax on it. Only public outrage prevented that agreement from coming to fruition, and now Arison has agreed to pony up five times that amount.

Tax Authority chair Jacky Matza believes that the victory, which he prefers to term as "an arrangement with which the tax authorities feel comfortable", constitutes a precedent in the field of trusts in Israel that will allow the ITA to ask hundreds of millions of shekels annually from Israeli trusts abroad.

Matza reveals that in the wake of this precedent ITA has already begun procedures to collect taxes from trusts set up abroad by various people who got rich off the 2000 high-tech bubble. "Anyone who made a major exit in 2000 in high-tech received advice to depost the exit funds in a trust abroad to avoid paying taxes," he asserted. "We are already in talks with the owners of these trusts, and now - thanks to the Arison precedent - I forecast that a large number of them will be forced to compromise with us about paying their taxes."

Trusts are arrangements in which an owner transfers management of his or her funds to another, the trustee, usually a lawyer. This method created a virtual wall between the owners and their monies, and they hid behind the trusts to claim that they didn't own the funds and therefore owed no taxes on them. The trusts abroad were considered the most blatant tax shelter for the upper-thousandth percentile here until a new law closing the loophole came into effect at the beginning of this year.

ITA sources attribute much psychological and professional importance to their achievement regarding Arison. First of all, Arison's trust was the largest of its kind of any Israeli abroad. Secondly, she is represented by Pinchas Rubin, who is considered to be among the top tax lawyers in Israel.