Taking Stock / Don't Cry for Sammy

If you ask Sammy Shamoon, he'll be happy to tell you what a terrible country Israel is for business. The bureaucracy is unbearable, the clerks are exasperating, and the income taxes are excruciating. In short, Israel is a horrible place to do business, Shamoon expounds at every opportunity.

One can feel for him. The poor guy barely netted a billion shekels in the last decade, and most of that was from investing in Teva Pharmaceuticals. The rest came from buying Yachin Hakal from the Jewish Agency at a ridiculously low price.

Sammy is a dear man: as rich as Croesus, as sharp as a tack, and as wary as they come. Yet somehow he always seems to be having difficulties with the state, administration, Income Tax Authority, or his partners.

For instance, he didn't buy Yachin Hakal due to his love of orange blossom aroma, but due to the smell of money that its lands rezoned for housing emitted, not to mention the scent of newly constructed apartments on that land.

But the Israel Lands Authority didn't know their man. The authority raised one obstacle after another until one fine day, after Arik Sharon had been elected prime minister, Sammy showed up at the ILA head office, then run by Miron Homesh. Armed by attorney Dov Weisglass, Sammy explained to Homesh just how egregious the ILA's mistake was.

The guys at the authority understand like a shot when it's fired by Dubi Weisglass. He's really good at explaining things. Lo and behold, within days, the ILA reversed its long-held position and decided to allow Yachin Hakal to ask to rezone the lands in Tel Mond.

Two years later, Weisglass is the prime minister's director-general and Sammy Shamoon is still angry. This time his beef is the income tax reform, which shifted collection from a geographical basis (where you made your money) to a personalized one (never mind where you made it, give us a bite). Which means that Shamoon, a resident of Israel, will have to report his operations everywhere in the world to the Income Tax Authority, as long as he remains a resident of Israel.

The Shamoon clause

Wipe away that tear for Sammy, dear reader. Page 102 of the treasury's plan to cure Israel's economy of its ills, submitted to the government two weeks ago, bears the following clause, translation courtesy of Haaretz.

"To empower the finance minister to determine that persons shall be seen as foreign residents when the majority of their business operations are outside Israel, who before becoming residents of Israel for the first time, carried out investment in Israel for the period set and under the conditions set."

Tax is a tricky business. Let us try to make sense of that. But since taxation is deathly boring, let's keep it short and sweet. Put briefly: "The finance minister shall be empowered to grant tax exemptions to Israel's heaviest millionaires with extensive operations abroad, such as Sammy Shamoon."

Last week, Nahum Barnea of Yedioth Ahronoth discovered that the Shamoon Clause had been proposed by none other than the prime minister, in a debate at his office with the treasury chiefs. When the prime minister was asked if the clause was related to Sammy Shamoon, he answered, "I don't talk about specific people personally."

No, Arik Sharon isn't dealing with matters personally, and for good reason. The state comptroller already ruled that Sharon may not deal with matters pertaining to lands and agriculture because he's a landowner and farmer, and hence has vested interests. But Sharon couldn't care less about the comptroller. He just can't keep his hands off these issues so dear to his heart - lands, water quotas and foreign workers.

Love the land

The prime minister's love of the land was evident in the scandal of the ILA's auspices. In the dim reaches of history, the ILA, which is the path to wealth of all Israel's developers and builders, operated under the auspices of the Agriculture Ministry. But when Ariel Sharon took over as Housing Minister, he demanded control over it. He got it, too, and it stayed with the Housing Ministry until 1996, when Sharon became minister of national infrastructure - and kept the ILA under his wing.

When he finally reached the prime ministerial seat, he immediately brought the ILA over to the Prime Minister's Office. Now in his second term as prime minister, he needed to sew up a respectable portfolio for his associate Ehud Olmert, so the ILA is now under his purview.

Anyway, back to Sammy, who had Jerusalem circles wondering this week whether that clause on page 102 had been penned under Shamoon's pressure.

But the truth is that Shamoon is but one of many sources of pressure on the prime minister. There are plenty of other heavy millionaires losing sleep over the possibility of reporting their foreign affairs to the Israeli taxman. You can understand them, too: their appetite to invest in Israel would disappear if they had to report all their dealings around the globe. They would far rather remain defined as foreign residents.

Income Tax Commissioner Tali Yaron-Eldar told us this week that numerous wealthy Jews have been contacting her. She confirmed that the issue had been raised by the prime minister during talks with treasury officials, but added that she felt perfectly at peace with the clause and deemed it perfectly appropriate and proper, and a key to attracting Jewish millionaires to Israel.

The logic in her position is clear enough, but care must be taken to apply these exemptions in a transparent fashion, and only pertaining to investments abroad, not in Israel. Only that would prove that the clause's purpose is to encourage investment in Israel, not to benefit a handful of millionaires associated with high officials.

These days, as Israel's salaried officials groan under the yoke of the insane tax rates the state imposes, with the levy on tens of thousands of high earners climbing to 65 percent, the prime minister would do well to lend an ear not only to a handful of millionaires whose representatives attract his attention, but also to the millions of Israelis who have lost much of their income and standard of living in the years under his rule.