Steinitz: Approve ‘trapped profits’ proposal
Finance Minister says alternative to proposal would be to collect more taxes from the public.
Finance Minister Yuval Steinitz Photo: Marc Israel Sellem
Finance Minister Yuval Steinitz on Thursday urged the Knesset Finance Committee
to approve a government proposal to release “trapped profits” of multinational
corporations. The only alternative would be to collect more taxes from the
public, he said.
Steinitz estimated the legislative amendment would boost
state coffers by NIS 3 billion next year. But opposition MKs accused him and the
government of delivering tens of billions of shekels in benefits to the
Until now, the Law for the Encouragement of Capital Investment
has exempted certain multinationals from paying company and dividend taxes, as
long as they invest their profits in further activities in Israel.
the proposed amendment, these corporations would be permitted to release their
trapped profits by agreeing to pay a reduced company tax rate.
companies would be required to distribute 40 percent to 70% of their trapped
profits, with the tax rate reduced according to how much they distribute. The
dividend-withholding rate would remain at 15%.
Defending the proposal,
Steinitz said it would guarantee the state a new source of revenue where
previously there was nothing. He estimated that from the years 2005-12 the state
collected less than NIS 600 million from the corporations in question – a far
cry from the estimated NIS 120 billion to NIS 125b. in trapped profits they have
The finance minister said the amendment would help the state
stand by the 2013 budget deficit target of 3%. “It is preferable to collect
these revenues from companies and not from regular citizens,” he said. The
Treasury is making an effort not to exceed a deficit of 3.9% this year, he
Israel Tax Authority director Doron Arbeli said the existing law
enables large companies to obtain tax exemptions as long as they do not pay
Companies had found three ways to exploit this clause – not
all of them legal, he said.
Firstly, 36% of corporations refrained from
distributing their profits, and therefore the amount they were taxed was
negligible, Arbeli said. Secondly, some companies transferred profits to
subsidiaries, causing them to face legal action from the ITA, which believes
this to be allocation of dividends.
Thirdly, some companies have not
reinvested their profits, and “the state has not seen one shekel from them,” he
Finance Committee chairman Moshe Gafni called the proposal “a
not-so-simple dilemma.” On the one hand, he said, it would mean allowing more
concessions for large corporations that already enjoy tax exemptions.
on the other hand, it would provide a source of taxation revenue that was not
Opposition MKs spoke against the amendment,
including representatives from Kadima, Labor, National Union, Meretz and
Labor chairwoman Shelly Yacimovich asked, “What should the idiots
who obeyed the law and paid their taxes on time be thinking now? That they are
the suckers? That they are stupid?” She also rejected the notion that collecting
this revenue immediately is more important than charging all companies the same
amount, telling Steinitz that he and the government must stop thinking of the
“Just a little patience is needed, that’s all,” Yacimovich
Meretz leader Zehava Gal-On accused Steinitz of “approving robbery
of the public purse and requiring the Finance Committee to act as the rubber
She said his proposal encouraged inequality under the law,
saying: “In these days of out-of-control deficit and cuts to social services,
[Finance] Minister Steinitz is giving up on tens of billions from companies that
owe the state money.”