Israel Warns Multinationals to Complete Reinvestment in 2017

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By Jenny David

Israel’s Tax Authority has reminded more than 200 multinational companies that opted into a reduced tax scheme on foreign transfers of “trapped” profits that they have until the end of this year to reinvest half the savings in Israel.

Companies that don’t do so will be required to pay additional corporate taxes on the difference between the required investment and what was actually made, the Tax Authority said in a Feb. 22 statement. It also defined applicable investments as those made in productive assets, research and development or payment of wages to new employees in “industrial enterprises.”

Five-Year Limit

The controversial amendment to the Encouragement of Capital Investment Law, passed in November 2012, allowed multinationals that received state benefits for their Israeli operations to pay significantly less tax when transferring their Israeli profits abroad in 2013. This was on condition that the companies reinvested half of the tax savings in Israel within five years.

As most of the companies that opted into the plan transferred their profits abroad in 2013, they have until the end of 2017 to fulfill the investment obligation, the authority said.

The reduced tax rate, offered for a one-year period ending in Nov. 2013, ranged from 6 percent to 17.5 percent, down from 10-25 percent at the time.

Too Soon to Tell

A Tax Authority spokeswoman told Bloomberg BNA Feb. 27 that it’s still “too soon to tell” which of the 214 companies that opted into the deal had yet to make the requisite investment, since they had not yet filed even 2016 returns.

Multinationals that signed on to the temporary arrangement—and thus entail the largest local investment—include Teva Pharmaceutical Industries Ltd, Checkpoint Systems Inc, Israel Chemicals Ltd. and Intel Corp.

An additional 4.39 billion shekels ($1.2 billion) in taxes were collected in 2013 as a result of the arrangement, on “released” profits totaling 60 billion shekels ($16.3 billion), the Tax Authority said.

To contact the reporter on this story: Jenny David in Jerusalem at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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