eBay Israel Plans to Challenge a $43.5 Million Bill for Taxes

Authorities say local R&D unit of U.S. company liable for income from overseas

FILE PHOTO: The signage at the entrance to eBay's headquarters in San Jose, California, January 14, 2015.
Marcio Jose Sanchez/AP

eBay Israel, the local research and development arm of the U.S. ecommerce company, is disputing a massive 156 million shekel ($43.5 million) assessment that the Israel Tax Authority says it has to pay.

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Israeli authorities contend that the Israeli unit should have reported 903 million in additional income over a five-year period generated from other overseas units of the company, a claim eBay Israel plans to challenge in Tel Aviv District Court.

Details of the dispute emerged in an opinion prepared by the Tel Aviv consulting firm Prometheus Financial Advisory and filed 11 days ago in connection with eBay Israel’s seeking court approval to pay a $230 million dividend to its parent company. Because the subsidiary doesn’t meet the ordinary standard for paying out a dividend, it needs special court approval.

The appeal on the tax assessment is for 131 million shekels of the 156 million, which is the amount the tax authority has assessed for the year 2010. The two sides are still negotiating assessments for the years 2011-15.

Multinational R&D centers like eBay Israel, which employs 220 people, don’t have sales revenue. Instead they work on a cost-plus system, whereby other arms of the company pay for its R&D cost plus another 10% that is deemed profit. The unit is liable for corporate income tax on the profit, which is ordinarily 23% if it is not an approved enterprise.

eBay declined to comment on the dispute, saying a formal statement would come when the matter is settled.