Succumbing to pressure from the tax authorities, Israel Chemicals said on Sunday it would pay NIS 380 million in taxes on so-called captured profits held by its Dead Sea Works and Rotem Amfert Negev subsidiaries.
- Israel in 11th hour bid to get NIS 2 billion in 'trapped profit' taxes from major firms
- Teva releases 'trapped profits,' to pay $565 million tax
- Check Point paying $147 million tax on 'trapped profits'
- Israel's treasury mulls how to use NIS 12b budget windfall
- Tax Authority celebrating what was really a disaster
ICL's decision came just as a temporary provision offering a tax break for companies with profits they earned from investments taken under the Law for Encouraging Capital Investment Law was due to expire.
ICL had accumulated NIS 4.7 billion overall in captured profits, so the tax rate it will be paying is just 8%. However, even counting the take from ICL's last-minute decision, only NIS 1.4 billion was collected in the treasury's tax-discount window, less than half the NIS 3 billion target set by the Israel Tax Authority a year ago, when the window went into effect.
Finance Minister Yair Lapid said ICL's decision released all captured profits held by its Dead Sea Works and Rotem units. "The decision is the result of determined negotiations in recent months," he said. "We will continue working in this area so that the money from captured profits reaches its real owners, the citizens of Israel."
Officials estimate the total amount of captured profits held by companies in Israel, including Israeli firms such as Teva Pharmaceutical Industries and Check Point Software Technologies as well as multinationals such as Intel, at around NIS 130 billion.
Teva said at the end of May that it would pay NIS 336 million on NIS 1.5 billion of the NIS 11 billion it accumulated in captured profits by the end of last year. But, if all the taxes due on them were paid, it would result in a windfall of nearly NIS 30 billion for the government.
Despite Lapid's statement, the tax authority said on Sunday that its campaign to pressure companies into paying tax on their captured profits had now formally come to an end. The program itself, instituted by the treasury in a bid to raise quick revenues at a time when it was feeling a severe fiscal squeeze, nevertheless generated controversy as a giveaway to wealthy and profitable businesses already enjoying low tax rates under normal circumstances.
"The captured profits law was born in sin and ended in failure," Meretz party chairwoman MK Zahava Gal-On said on Sunday before the ICL announcement. “The government should have collected full tax on the trapped profits and not allow the gigantic corporations to plunder the public till. “
The State Control Committee, chaired by MK Amnon Cohen (Shas) will meet Wednesday to discuss the subject of captured profits.
"In an age of cutbacks, the government ignores profits in the billions that could be used for education, welfare and health services," Cohen said, adding, "We won’t let the economy and finance ministries and the tax authority continue this careless and wasteful behavior."
Companies had been able to put off paying taxes so long as they did not pay them out to shareholders as dividends, hence the term captured profits. However, a temporary amendment to the Law for Encouraging Capital Investment allowed companies to release the profits in exchange for a one-time tax payment at a reduced rate of between 40% and 70% of the rate that would have applied in the year the profit was earned.