Idan Ofer, who controls The Israel Corporation and is one of Israel’s wealthiest men, is believed to be planning to move his home base from Israel to London.
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The move has been reported to hinge on personal factors such as plans by his son, who has just finished his army service, to study in Britain. But there could be tax implications, too, and if Ofer succeeds in selling his interest in Israel Chemicals Ltd. those implications could be enormous, both for him and the State of Israel.
Israel Corp., led by Chairman Amir Elstein and CEO Nir Gilad, has been fiercely lobbying the government to forgo its veto and sign off on what could be one of the largest corporate acquisitions in Israeli history − the sale of ICL to Canada’s Potash Corporation of Saskatchewan (Potashcorp), which already owns 13.9% of its shares.
Israel Corporation’s 52.3% stake in ICL has a Tel Aviv Stock Exchange market value of $8.8 billion, which is $7 billion more than the book value of its shareholders equity in the subsidiary. The difference could turn out to be profit in the event of a sale.
British law offers extensive tax benefits to whoever qualifies as a “non-domiciled resident,” according to Avi Nov, an expert on international tax law. The fuzzy definition of this status and the tax breaks it bestows is one of the main reasons the British capital is such a popular destination among Arab sheikhs and Russian oligarchs.
If Idan Ofer does decide to move to London and claim non-domiciled resident status, he will be able to enjoy enormous tax benefits since taxpayers in this category are subject to a territorial tax regime. This means the British tax authorities will only tax whatever income Ofer derives in the United Kingdom and exempt him from paying any tax on dividends, capital gains or interest from outside its borders.
That would include capital gains from Israel Corporation’s sale of control in ICL for which he could stand to save some $300 million on his taxes.
This tax regime will prove much more comfortable for Ofer than the system applied in Israel since 2003, which imposes tax on residents regardless of where their income is derived. Other prominent Israeli businessmen who preceded Ofer to London include Zvi Meitar, who is among the founders of Amdocs; Erwin Eisenberg, whose family pre founders of Amdocs; Erwin Eisenberg, whose family previously controlled Israel Corp.; and Lev Leviev, who controls Africa Israel Investments.
But Israel’s tax authorities aren’t noted for giving up easily. Ofer’s claim to being a resident of Britain and therefore not subject to Israeli tax laws will need to be backed up by proof attesting to his “center of life” being located abroad.
For instance, he’ll need to prove that he was abroad the majority of days in each of the first two years he claims not to be living in Israel and that he has spent not more than 425 days in the country over the last three years.
Even if he does succeed in proving that his new center of life is London and he is no longer an Israeli resident for tax purposes, the tax authorities could still slap him with an exit tax. Under paragraph 100a of the tax code, a person’s assets will be considered sold one day before he ceased being a resident of Israel, according to Nov.