Teva Enjoyed Lion’s Share of Tax Breaks in Years 2012-13

Drugmaker received benefits amounting to NIS 6.5 billion, Israel Tax Authority reports.

Trucks drive in front of Teva Pharmaceutical Logistic Center in the town of Shoam, Israel.
AP

Teva Pharmaceuticals enjoyed tax breaks of 6.5 billion shekels ($1.7 billion) in 2012-13, making it by far the largest recipient for those years, figures released by the Israel tax Authority on Monday showed.

The figures were for the 10 largest recipients of corporate tax breaks, which amounted to 8.5 billion shekels, during the years 2012-14. Israel Chemicals received 980 million shekels in relief while Check Point Software technologies got 892 million, the figures showed.

Further down the list, defense company Elbit System enjoyed relief amounting to 176 million shekels and drugmaker Perrigo, a U.S. company with extensive operations in Israel, got 89 million in breaks.

Moreover, the relief is expected to growing next year and the year after, according to State Revenue Authority projections. In a report to the Knesset in 2014, it said tax benefits awarded under the law for Encouraging Capital Investment would reach 7.9 billion shekels in 2015 and 7.1 billion in 2016.

By comparison, between 2006 and 2011, Teva, ICL, Check Point and Elbit together enjoyed only 16 billion shekels in tax benefits, with Teva getting 11.8 billion of the total and ICL 2.2 billion. All told for 2006-13, the government awarded benefits equal to 18.3 billion shekels.

Teva defended the tax breaks, saying they were awarded within the framework of the law and said that between taxes paid by the company itself, its suppliers and subcontractors, shareholders on dividends and so forth the amount came to about 15 billion shekels annually.

“The tax rate under the Law for Encouraging Investment was updated in 20and today is 9% and as a result the rate will increase significantly for income the company generates under the law. In regards to all other income, Teva pays the full corporate rate,” the company said.

ICL noted that in the years 2012-14 it invested about 4.5 billion shekels in Israel, which it noted was five times the size of the tax breaks it was entitled to.

“Even though ICL realized the goals of the [investment] law, the government of Israel made us an exception. As a result, ICL is gradually ceasing to enjoy the privileges under the law so that all the relevant benefits will cease as of 2017-18,”’ the company said in a statement.

The reasons for the big increase in tax breaks was a change in the investment law, which is designed to encourage export-oriented companies to invest in new plants and equipment mainly in Israel’s periphery and create jobs, in the early 2000s when Ehud Olmert was industry, trade and tourism minister and Benjamin Netanyahu was finance minister.

The new, more generous program of tax breaks the two designed was aimed at attracting more foreign companies to Israel. But Teva ended up being the company that took the most advantage of the law and the estimated 4 billion shekels in tax breaks the amended law was projected to cost the government ballooned.

By 2010, when the cost of the program was adding up, the finance and economy ministries rescinded the law’s most generous provisions. By then, the tax breaks added up to 5.6 billion shekels, compared to 2.3 billion in 2003 before the law had been amended.

The revised law entitled qualified companies to enjoy a tax rate of 12.5% if they are in the center of the country and 7% in the periphery of the Negev and Galilee, compared with an ordinary corporate tax rate of 25%.

Big companies, like Intel Israel, pay only 5% in the periphery and 8% in the center. The rates were due to go down further for 2015, but Yair Lapid, when he was finance minister, raised the rates in 2014 to 15% and 10% for the center and periphery, respectively, in order close a fiscal hole.

In any case, a study conducted by the State Revenue Administration found that the break did little to increase employment in the periphery, where joblessness is a chronic problem, because companies employed people living in the center for factories in the periphery. It estimated that only 28% of the breaks benefitted employees living in the periphery while 53% benefitted employees living in the center.