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Finance Minister Silvan Shalom yesterday amended income tax regulations to give Israeli companies registered on foreign stock exchanges an incentive to register in Tel Aviv.

The change will exempt private Israeli investors from paying tax on capital gains made on dealings in the securities of dual-listed companies. (There is a general capital gains tax exemption on Israeli companies traded in Israel which are also traded in New York).

Sources in the capital market believe this may encourage more companies to dual-register. The easing of listing procedures last year for companies to register on the Tel Aviv Stock Exchange if they were already listed on the U.S. exchanges, has so far encouraged 13 firms to do so - even Polycom, an American company, registered on the TASE after the easing.

Two of these, Partner and Blue Square have become listed on the Maof (top 25 stocks) because of their size, while five firms are on the technology weighted Tel-Tech index. Other large technology companies such as Comverse, Mercury and Amdocs are all considering dual-listing on the Tel Aviv bourse.

Shalom's amendment to the income tax regulations may not only be a move to encourage listing on the local exchange, but may also give an indication of the health of the tax reforms. Former treasury director general Avi Ben-Bassat chaired a panel that put forward a sweeping reform of Israel's direct taxation system, but the reforms have yet to be adopted.

Part of the recommendations were to redress the balance between taxation on income and the tax levies on capital gains. The current system levies taxes heavily on income, while exempting tax on trade in Israeli company shares.

Sam Bronfeld, director of the TASE, warmly welcomed yesterday's move.