|Photo by: Ivan Alvarado / Reuters|
Israel Tax Authority rebuffs attempts to exploit 2011 export-tax loophole
The phrasing of the investment law allowed companies to reduce their corporate tax from the 2011 rate of 24 percent to either 16% or 9%.
The Israel Tax Authority on Thursday rebuffed attempts by dozens of
non-exporting local companies, allegedly including cement monopoly Nesher, to
exploit a capital investment- tax loophole in their 2011 filings meant to
The phrasing of the investment law allowed companies to
reduce their corporate tax from the 2011 rate of 24 percent to either 16% or 9%,
provided that they serviced populations larger than 12 million people, an
approximation of the total population in Israel and the Palestinian
Though the spirit of the law was to
provide a break for exporters, the companies attempted to take advantage of the
break by arguing that the population in Israel and the territories exceeded 12
million in 2011.
The tax authority said it had already publicly rejected
the use of such arguments for 2011. It argued that the population had not yet
exceeded the given threshold. In 2013, the Knesset passed an amendment
retroactive to 2012 increasing the population threshold to 14 million and
automatically increasing the amount annually.
According to Calcalist, the
state comptroller is investigating a complaint over the tax filings. Nesher did
not respond to requests for comment.
In response to the controversy,
Federation of Israeli Chambers of Commerce president Uriel Lynn called for
rewriting the law for the encouragement of capital investments in its entirety.
The strange formulation using population as a proxy for exporters, he said, was
an explicit attempt to circumvent Israel’s World Trade Organization obligations,
which preclude giving exporters unfair advantages.
“This law is not only
an attempt to mislead international organizations,” Lynn said, it also misleads
locally since it does not at all encourage capital investments.
it is a law that primarily encourages industrial export.”
said, the law should be based on the principles of encouraging investment in the
periphery and investments by foreign companies that improve Israel’s
The law has been the subject of intense scrutiny since the
Finance Ministry revealed in May that in 2010, the 70% of tax breaks outlined in
the law went to Israel’s four largest companies – Teva, Intel, Israel Chemicals
and Checkpoint – which paid an average effective rate of 3%.