Israel Bonds Has Been Registered in a Tax Haven for 20 Years

The company has found a home in the British Virgin Islands, the finance ministry admits, though it might change that policy.

Israel Bonds, a Zionist stalwart that fosters the country’s economic development, is registered in the British Virgin Islands, without the organization ever making the fact known in its English- or Hebrew-language documents.

In a statement Monday, the Finance Ministry, whose accountant general is responsible for the International Bonds Organization’s activities overseas, acknowledged that the operation is registered as a nonprofit, operational company in the Virgin Islands.

“The company established this structure about 20 years ago,” the ministry said, but seeking to ensure that the company is subject to proper governance, the treasury added: “The company is subject to corporate governance, including a board of directors, comptroller and outside auditor.”

Founded in 1951 as a government company under the auspices of the treasury at a time when Israel had no access to the international debt market, the Bonds Organization operates in the United States under the supervision of U.S. regulators. Its raises debt capital for Israel by selling bonds.

The head of the organization, formally called the Development Corporation for Israel, is always an Israeli appointed by the Finance Ministry, currently the businessman and Likud activist Izzy Tapoohi.

Israel Bonds is a fixture of Diaspora Jewish life, particularly in America. The bonds, for example, are given as presents at bar and bat mitzvahs, though they are also held by institutional investors.

Of the $29 billion in foreign debt held by the Israeli government at the end of 2012, the last year for which there are figures, some $6.6 billion was in the form of Israel Bonds. Last year, the Bonds Organization raised $1.12 billion through bond sales in the United States alone, although Israel has been able to tap the international bond market without any help for the better part of the last decade.

In an effort to further clarify the company’s status, the treasury added in a second statement that the company registered in the Virgin Islands is a private firm that operates for the State of Israel based on an agreement signed by the two parties.

“We have been informed that the reason for the Virgin Islands registration was operations,” the ministry said. “There were no tax considerations involved in the decision because it is not a for-profit enterprise.”

It said that as part of a planned reorganization of the Bonds Organization, officials were considering whether to register the company elsewhere.

The British Virgin Islands has a long reputation as a global tax shelter. A decade ago some 550,000 foreign companies were registered there, despite the place’s meager population of 22,000 and modest 153 square kilometers. The territory is part of an archipelago that includes the U.S. Virgin Islands.

The British Virgin Islands turned itself into a tax shelter 29 years ago. Since then, the local government, which is answerable to Britain, along with lawyers and accountants – including Israelis – have marketed the territory as a tax haven. Corporate registrations are easy to obtain.

The British Virgin Islands levies no corporate tax, compared with a 26.5% rate in Israel, so the only costs for companies is a registration fee based on the business’ registered capital. A corporation with registered capital of $50,000 would be liable for $300.

Under Israeli law, a company is liable for tax if it is owned and managed from Israel. In the case of Israel Bonds, the Tax Authority claims that management and control are overseas, as are its operations and fund-raising activities, so it is not liable for Israeli tax.

Dreamstime