Teva to pay NIS 2.54b in taxes, release 'trapped profits'

Company made announcement Monday night, just hours before an incentives law expired; figure includes back taxes from 2005.

FM Lapid at Eilat conference 370 (photo credit: Yossi Zamir)
FM Lapid at Eilat conference 370
(photo credit: Yossi Zamir)
Pharmaceutical Giant Teva will releasing 'trapped profits' and pay the state of Israel NIS 2.54 billion, including back taxes from 2005, the company announced Monday night, just hours before an incentives law expired.
According to the company, it will pay NIS 2 billion (including a NIS 336m payment it made in may) in the framework of the 2012 "trapped profits law," which expires at midnight Monday. It will pay NIS 840m for tax assessments from 2005-2011, and another expected NIS 833m. for its 4th quarter results.
“We have reached a beneficial agreement for Teva and the Israel Tax Authority concerning the release of trapped profits and the closure of pending tax assessments." said Eyal Desheh, Acting President and CEO of Teva. “The agreement generates sources for dividends to our shareholders for years to come and settles tax assessments which had been in dispute for a long time." Desheh stepped into the role temporarily after former CEO Jeremy Levin was pushed out of his position at the end of October.
Monday's announcement follows intense negotiations with the Tax Authority, which hoped to collect NIS 3 billion in trapped profits before the laws expiry. On Sunday, Israel Chemicals came to a similar agreement to pay NIS 380m.
Finance Minister Yair Lapid said he was "happy that Teva also made the right decision in its choice to release some NIS 33 billion in trapped profits." He promised to find a balance between the job creation that tax incentives can spurn as they attract international companies to invest in Israel, and the Treasury's tax revenues.
A May Finance Ministry report elicited a public outcry when it revealed that Teva and Israel Chemicals alongside Intel Israel and Check Point - Israel's four biggest companies, had received 70 percent of all corporate tax benefits in 2010. The NIS 4b. in breaks, given through the Law for the Encouragement of Capital Investment, reduced their average effective tax rates to about 3%.
Though Lapid reacted sharply at the time, last week he seemed to soften his stance on the usefulness of corporate tax breaks to encourage investments.
“We need to oversee the tax benefits for large companies, we need to create better mechanisms for checking them and increasing efficiency; but we must continue to use tax benefits to continue bringing Intel, Cisco, Siemens and Google to Israel, because that’s also what makes us innovative," he said.