Teva, ICL and Check Point Got NIS 15.7b in Tax Breaks in 5 Years

These three companies received the largest tax breaks between 2006 and 2010, according to Tax Authority data released Tuesday under court order.

Teva Pharmaceuticals, Israel Chemicals and Check Point are the three publicly-traded companies that received the largest tax breaks between 2006 and 2010, according to Tax Authority data released Tuesday under court order.

These three companies received a total of NIS 15.7 billion in breaks over that period.

The data was revealed after the financial daily Globes sued to make the information public. The court ruled in the newspaper’s favor, but the Tax Authority agreed to go along with the ruling only in part, arguing that data on private companies should be kept private.

Two other companies − Iscar and Intel Israel − are also known to have received incredibly generous tax breaks. But neither is publicly traded, so the Tax Authority did not release figures on them.

Teva Pharmaceutical Industries placed first on the list, reaping NIS 11.78 billion in tax savings between 2006 and 2011 under a government program to encourage capital investment. From 2006 to 2008, it received an average of NIS 1.4 billion a year in breaks; that figure shot up to NIS 2.3 billion in the two years that followed.

Teva was followed by Israel Chemicals ‏(NIS 2.2 billion total‏), which received NIS 700 million in 2008 but only NIS 400 million in the two years that followed. Then came Check Point Software Technologies ‏(NIS 1.65 billion total‏), which received breaks averaging NIS 250 million a year from 2006 to 2008, rising to NIS 410 million by 2011.

They were followed by Elbit Systems ‏(NIS 435 million‏), Oil Refineries ‏(NIS 140 million‏) and Rafael Advanced Defense Systems ‏(NIS 145 million‏). Syneron received a tax break of NIS 86 million during one of the years in which the program was in force, while NICE Systems saw NIS 135 million in savings over a two-year span.

The names of privately held companies that received the largest benefits during the five-year period were not released. The Tax Authority has argued that this would violate their privacy, and it has asked the court to let this information remain confidential. If it made the data public, it argues, other privately held companies would not cooperate with the authority and give it real-time data on their operations.

However, the list probably includes at least some of the following companies: Intel, Iscar, Amdocs, defense company Plasson Sasa, and biotech company Biosense. Sources close to the finance and economy ministries believe each of these companies received hundreds of millions of shekels’ worth of tax breaks between 2006 and 2011.

The 10 privately-held companies that received the largest breaks likely received a total of NIS 20 billion to NIS 25 billion between those years, according to estimates. This comes on top of the NIS 16 billion in breaks that went to publicly held companies.

Intel is not only one of the 10 companies that likely received the most generous tax breaks in absolute terms; it is also one of the four companies − together with Teva, Israel Chemicals and Iscar − that accounted for 70% of all corporate tax breaks granted in Israel in 2010. Intel is also thought to have received the state’s most generous investment grants.

The capital investments law was changed in 2011 after the scope of the tax benefits granted under it became clear, and is currently undergoing further changes. Tax Authority officials now admit that there’s no justification for benefits of this size, but noted that they were granted legally nonetheless.

Finance Minister Yair Lapid is reexamining the benefits granted under the Encouragement of Capital Investment Law, his office said yesterday.
A recent State Revenue Administration report stated that Teva, Israel Chemicals, Intel and Check Point received tax breaks totaling NIS 4 billion in 2010, and paid only NIS 1.14 billion in taxes that year.

Things may be worse now. In 2012, Teva paid taxes equivalent to only 0.3% of its revenue in Israel − $5 million in taxes on $1.66 billion in revenue. Intel, which was supposed to pay tax equal to 10% of its revenues, was given the option of paying only 5% under the capital investments law that took effect in 2011. The effective tax rate paid by those four companies was 3.3%, compared to the 25% official corporate tax rate and an average rate of 10.5% to 20.8% among all companies receiving benefits under the capital investments law.

The State Revenue Administration found that the generous tax breaks under the capital investments law did not achieve the goal of dramatically increasing employment in the periphery. Rather, the companies benefiting from the law continued primarily employing workers from the center of the country, even though their offices were in the periphery.

Yuval Tebol