In Unprecedented Move, Israel to Reap Taxes From Huge Mobileye Sale in Dollars

The U.S. company reaches an agreement with the Israeli government on a liability that could reach $1.5 billion

Mobileye's logo on the building of its offices in Jerusalem, March 13, 2017.
Ronen Zvulun / Reuters

In an unprecedented move, the tax windfall Israel expects to reap from Intel’s $15.3 billion acquisition of the self-driving-car company Mobileye will be paid in dollars rather than shekels under an agreement with the U.S. semiconductor giant announced Tuesday.

The Bank of Israel is loath to have Intel convert the tax money into shekels – a figure that experts predict between $1 billion and $1.5 billion.

The central bank has been fighting a mostly losing battle to stem an appreciating shekel for fear it will make Israeli exports uncompetitive and hurt economic growth. It has acquired some $4 billion in foreign currency this year and doesn’t want Intel undoing all that work by buying hundreds of millions of dollars in shekels to pay its tax bill.

The agreement to pay the tax bill in greenbacks was reached between Intel and the Israel Tax Authority, the Finance Ministry accountant general and the Bank of Israel.

“This is a historic event. The decision means the treasury, even if it’s not saying so officially, has decided to intervene in the forex market,” said Yossi Fraiman, CEO of Prico Risk Management & Investments. “The treasury is doing this intervention through the Tax Authority, and we can assume it will be making deals like this going forward.”

The treasury has basically intervened in the forex market before through hedging deals, but this time it is acting far more decisively, Fraiman said.

“The Finance Ministry understands that the Bank of Israel can’t act alone and that a shekel appreciation would be fatal for domestic industry, not just the export sector, because it would also mean cheaper imports and competition for factories that employ the weakest segments of the labor market,” he said.

Actually, the shekel’s strengthening hasn’t done much this year to worsen Israel’s trade picture. The Central Bureau of Statistics said Tuesday exports of goods and services climbed at a preliminary 8% annual rate in the first quarter while imports were down 8.9%.

The dollar fell below 3.60 shekels twice in the last two days, but it turned higher and its Bank of Israel rate was 3.6060 on Tuesday.

Intel’s March announcement that it was buying Mobileye was celebrated in Israel. If approved by Intel shareholders next month, as expected, it will be the biggest purchase of an Israeli company ever one that has been lauded as yet another seal of approval from a leading global tech company of Israel’s high-tech prowess.

Also, the proceeds will help fill the government’s already overstuffed coffers and were reportedly a factor in Finance Minister Moshe Kahlon’s decision to unveil a series of tax cuts and other help for young working families.

Now that the government will be receiving the Intel taxes in dollars, the proceeds will either be deposited at the Bank of Israel as foreign exchange reserves or spent abroad by Israel on arms or other items.

As the buyer of Mobileye, Intel itself doesn’t owe any taxes – it’s the sellers that are liable. But under the acquisition terms, the U.S. company will assess their tax liability, pay it and transfer the net amount owed to Mobileye shareholders.