Taxman Rejects Dividend Tax Exemption for ICL

The Tax Authority yesterday rejected Israel Chemicals' request to receive "strategic investor" status, which would have exempted the company from tax on dividends for a period of 10 years, on top of the exemption from corporate tax which it already enjoys, a source familiar with the decision reported.

The request was discussed on Tuesday by representatives of the Finance Ministry and the Ministry of Industry, Trade and Labor.

The latter administers the "strategic investor" program.

ICL had argued that the company meets the criteria for the tax break. These criteria include investing at least NIS 600 million in remote areas for a period of three consecutive years and annual sales of over NIS 13 billion. ICL is already exempt from corporate tax under a special program that awards this benefit to companies that invest more than NIS 300,000 in outlying areas, on condition that the company exports at least 25% of its production.

Iscar, another large Israeli company, has also requested "strategic investor" status. Like ICL, Iscar is already exempt from corporate tax, and is now seeking a tax exemption on dividends as well. The Tax Authority is reportedly hesitating over this application, because the required investment has taken place under different shareholders - first the Wertheimer family, and then Iscar's new owner, Warren Buffet.

The "strategic investor" program was originally aimed at attracting foreign investors to make large investments in the country. However, in the absence of foreign investors, the Industry Ministry's Investment Center has unofficially encouraged large Israeli companies to expand their investments by granting them this status, even though the companies are profitable. Teva was the first Israeli company to be awarded such status.