Teva Releases 'Trapped Profits,' to Pay $565 Million Tax

Finance Minister Yair Lapid: Pharmaceutical firm released NIS 33 billion in trapped profits.

Teva Pharmaceutical Industries will pay NIS 2 billion ($565 million) to the government as part of a program to release so-called trapped profit in exchange for a steep discount on its tax bill, the company said on Monday.

Trapped profit is profit earned by multinationals after they had been provided with tax breaks to invest in Israel. The Finance Ministry is seeking to give the firms incentives to repatriate some of this profit and generate tax revenue for the government.

In all, Teva will hand over NIS 2.84 billion to the state, a sum that also includes NIS 840 million to settle tax assessments from 2005 to 2011 as well as a payment of NIS 336 million it paid in May when it released some trapped profit.

According to Finance Minister Yair Lapid, Teva released NIS 33 billion in trapped profit.

State coffers will collect about NIS 3.6 billion this year in taxes on trapped profit from various local companies, according to the tax authority.

Teva, the world's largest generic drugmaker by sales, said it would incur a charge of $235 million, which would be reported in fourth-quarter adjusted results.

Israeli companies have an estimated NIS 120 billion of trapped profit.

One aim of the government scheme is to encourage Israeli companies to distribute a dividend from undistributed profit that is tax exempt.

The deadline to take advantage of the program, in which companies can receive a 60% discount on the taxes they pay, is Monday at midnight.

On Sunday, Israel Chemicals, the world's sixth-largest potash producer, said its board decided to release all the trapped profit at units Dead Sea Works and Rotem Amfert Negev. As a result, ICL will pay NIS 380 million in taxes.

Teva's acting CEO, Eyal Desheh, said the company reached a beneficial agreement with the government.

"The agreement generates sources for dividends to our shareholders for years to come and settles tax assessments which had been in dispute for a long time," he said in a statement.

"We believe that such government policy strengthens the continued economic growth of the State of Israel by offering an attractive business environment for multinational companies like Teva to invest in Israel," he added.

Earlier Monday, opposition leader and Labor Party chairwoman Shelly Yacimovich asked Lapid whether the treasury intended to collect the full amount of taxes from companies that did not take advantage of the temporary provision giving them a discount.

“The corporate giants that enjoyed exemptions and unprecedented benefits should be receive tax assessments just like ordinary companies and citizens, who wouldn't dare withhold tax payments," Yacimovich said, adding, "This is the time to genuinely change the rules of the game and to begin to promote the economy’s growth engines, Israel’s small and medium-sized businesses.”

Bloomberg