This Israeli Hollywood Mogul Didn't Pay Taxes for a Decade. Here's How

Billionaire film producer Arnon Milchan, the man behind countless Hollywood blockbusters, received a half-billion-dollar gift from politicians over the years

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Arnon Milchan, center, poses with movie stars Brad Pitt and Angelina Jolie at the premiere of 'Mr. & Mrs. Smith' in 2005.
Arnon Milchan, center, poses with movie stars Brad Pitt and Angelina Jolie at the premiere of 'Mr. & Mrs. Smith' in 2005.Credit: Reuters
Eytan Avriel
Eytan Avriel
Eytan Avriel
Eytan Avriel

There are some extremely wealthy people who never pay taxes despite their capital constantly earning them money. That’s right, their tax bill is zero.

It was not supposed to be like this, but tax regulations in most countries are based on residency. This is usually determined by the number of days a person resides in that country each year, and occasionally by other rules such as their “center of life.”

Milchan was careful about not remaining in any one country for too long – especially not the United States, where his production company is located.

The result is that if a person decides to hop from one country to another, and to not remain in any country for longer than a few days (which would qualify them as a “resident”), and if they have no family or minor children who live in any one country, they will sometimes not be taxed anywhere – although there are international tax conventions that are supposed to resolve such issues.

Producer Arnon Milchan accepting the Film Tribute Award at the 26th Annual Gotham Independent Film Awards in New York, November 28, 2016.Credit: Evan Agostini / AP

According to an accumulation of evidence in recent years, plus declarations given in court during the ongoing Benjamin Netanyahu corruption trial, Israeli film producer and businessman Arnon Milchan – who provided the Netanyahu family with lavish gifts such as cigars, pink champagne, jewelry and clothing – apparently also paid no taxes at all, anywhere, from 2008 to 2018.

How exactly did Milchan, 77, achieve this? After speaking with a number of international tax consultants – including former senior officials in the Israel Tax Authority who know the law but declined to discuss the personal tax planning of Milchan himself – it seems that the tax planning was based on three principles.

The first principle: Milchan was careful about not remaining in any one country for too long – especially not the United States, where his production company is located. This we know from fresh testimony offered by his personal assistant Hadas Klein, who told a Jerusalem court during the Netanyahu trial last week that Milchan did not pay taxes in the United States, and that he “counts the days” in the countries to which he travels.

Hada Klein at the Jerusalem District Court, last week.Credit: Ohad Zwigenberg

Here is the exact quote: When Judge Moshe Bar-Am asked Klein, who has been Milchan’s aide for more than 30 years, whether her boss had a U.S. work visa, the answer was: “No. The businesses are not registered that way. He doesn’t pay taxes in the United States.”

Indeed, Milchan’s alleged request for visa assistance from Netanyahu in 2014 – when the then-prime minister reportedly successfully lobbied then-Secretary of State John Kerry on Milchan’s behalf – was not for a Green Card or a work visa but instead for a tourist visa, even though Milchan has lived in the United States for decades and his businesses are located there. (The producer’s hit movies for his New Regency company include “The Revenant,” “The Big Short” and “12 Years a Slave.”)

The Israel Tax Authority repeatedly called on the government to cancel the reporting exemption. Yet time after time, politicians declined to do so.

As for the matter of planning the number of days he stays somewhere, Klein said: “He counts the days in each country he goes to in the framework of his businesses.”

The second principle is the so-called Milchan law (amendment 168 to the income tax law from 2008), which grants full and complete exemption from all payments and reporting of taxes for new immigrants and returning Israelis for 10 years upon arrival. Milchan himself, through his lawyer Pinhas Rubin, is the one who initiated the passage of the amendment that bears his name, encouraged by the Aliyah and Integration Ministry.

Leonardo DiCaprio, Arnon Milchan and Steven Spielberg take a selfie at the 88th Annual Academy Awards.Credit: AFP

Because he had the status of a returning resident, Milchan was exempt from paying income tax in Israel on his assets abroad. And as long as he was careful not to remain too long in the United States, as Klein said – he paid taxes neither in the United States nor Israel.

A worthwhile investment

What about other countries? This is where the third principle comes in. Like many other wealthy people, most of the current income of people like Milchan stems from passive assets such as stocks, real estate, royalties and payments from previous businesses they were associated with – and therefore, until recently they would register such assets in tax shelters that do not tax income on rent, interest, capital gains and royalties.

The producer held many such assets in tax shelters, as revealed when some 11.9 million documents were leaked in the so-called Pandora Papers in 2021. According to an October 2021 investigative report by Uri Blau for the nonprofit news organization Shomrim, Milchan “kept part of his fortune and art collection in companies in the Virgin Islands as a tax dodge. ... According to the leaked papers, Milchan’s holdings in the tax haven are worth almost half a billion dollars.”

Arnon Milchan with Benjamin Netanyahu in Jerusalem, 2005.Credit: David Silverman/Getty Images

According to an international tax expert, holding assets in tax shelters is especially suitable for a person who receives royalties. Milchan’s hit movies, stretching back to “Pretty Woman” in 1990, would presumably bring in a continuous flow of royalties.

Now the full picture comes into focus: By planning the number of days he stays in any country, thanks to a tourism visa in the United States and registering assets in a tax shelter, and especially by means of the exemption from tax payment and reporting thanks to the amendment he himself initiated, Milchan apparently paid no taxes anywhere in the world for years, saving hundreds of millions of dollars.

How much, exactly? When we asked Milchan questions about his tax planning, through Klein’s team, we received no response. But we can make a rough calculation: If, based on Forbes Magazine’s billionaires list, Milchan was worth $3.1 billion in 2008 and if he earned, conservatively, 6 percent interest on that, each year he would have saved capital gains tax to the tune of about $50 million – which over the 10 years of the exemption comes to about half a billion dollars.

This is, of course, big money, which dwarfs the “investment” Milchan allegedly made in his relationship with Netanyahu and the politicians who allowed him to legislate, and thereafter to preserve, the amendment to the tax law named after him.

James Packer and Arnon Milchan.Credit: Chip Somodevilla / Getty Images

Privileges of the wealthy

Who else is involved besides Netanyahu? The “Milchan amendment” was passed in 2008 when Ehud Olmert was serving as prime minister. He was certainly aware of the matter, as were former finance ministers Roni Bar-On and Avraham Hirschson. But this is only the beginning. Because the law created a global tax haven for Jewish and Israeli millionaires, it was heavily criticized by international tax authorities and the Organization for Economic Cooperation and Development, which pressured the Israeli government to cancel it – or at least cancel the part that exempted people from reporting taxes and information on their assets, which means the Israeli authorities are unable to share information with counterparts in other countries.

As long ago as 2013, Israel’s state comptroller harshly criticized the law. “The exemption from reporting and payment of tax given to new immigrants and returning Israelis according to amendment 168 is intended to encourage aliyah and living in Israel. But granting a broad exemption might create an incentive to launder money, or to use capital laundered abroad – which can harm society and the economy,” a report stated.

The Israel Tax Authority repeatedly called on the government to cancel the reporting exemption. Yet time after time, politicians declined to do so.

Arnon Milchan poses for photographers upon arrival at a premiere in London in 2018.Credit: Vianney Le Caer / Invision / AP

Among those opposed to canceling the reporting exemption were Zeev Elkin, the current construction and housing minister, and thereafter, the aliyah and integration ministers from Yisrael Beiteinu.

The authority was not alone in its demand to cancel the exemption. A request by the Income Tax Commission to cancel the reporting exemption came up in 2013, again in 2015, as well as in the two-year budgets of 2017 and 2018. However the finance ministers at the time – Yuval Steinitz, Yair Lapid and Moshe Kahlon, all under Netanyahu as prime minister – each rejected the demand.

As his period of tax exemption approached its end, Milchan came up with a new idea: extending it from 10 to 20 years. He turned to then-Prime Minister Benjamin Netanyahu and also met with then-Finance Minister Lapid.

Prime Minister Lapid, who worked for Milchan when he was younger and considers him a friend, did not, as far as is known, receive gifts from the mogul.

Arnon Milchan, center, with singer Einat Sarouf and Yair Lapid at a Tel Aviv club in 2004.Credit: Moti Kimche

Lapid, who worked for Milchan when he was younger and considers him a friend, did not, as far as is known, receive gifts from Milchan – but he certainly gave serious consideration to the request. When questioned by the police as part of the “lavish gifts” investigation that became known as Case 1000 against Netanyahu, Milchan said he attended a meeting in the cellar of Lapid’s home while the latter was finance minister (from 2013 until the end of 2014), together with his attorney Pinhas Rubin, and Lapid’s then-economic aide, Rotem Rulf. She herself testified about the meeting: “Lapid tasked me with checking with professional officials and giving my opinion.”

In the end, Milchan’s efforts to extend the exemption came to nothing and the exemption remains as it was: 10 years.

With or without recourse to gifts, how many people in Israel can make personal requests of a prime minister, or get to the cellar of the finance minister’s home together with their professional staff, and request a tax exemption for a further 10 years? In the Israeli political culture, this is a privilege reserved for very few – and they are always extremely wealthy.

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