“The tax treaty with Israel ratified by the Luxembourg authorities will immediately lead to Israel collecting hundreds of millions of shekels in taxes from companies that use Luxembourg as a tax shelter, says former Income Tax commissioner Adv. Tali Yaron-Aldar, now at the Cohen, Cohen, Yaron-Eldar & Co. law firm.
Yaron-Eldar said the tax treaty would dramatically change tax planning by Israeli customers and individuals who have multinational investments held through Luxembourg. Cohen, Cohen, Yaron-Eldar international tax practice head Henriette Fuchs-Grootscholten believes that at least 200 Israeli companies and financial institutions using Luxembourg as a tax shelter would be affected by the treaty, which comes into effect immediately.
Yaron-Eldar says many Israelis chose Luxembourg as a tax shelter because foreign companies pay 20% capital gains tax, compared with the 25% rate in Israel for foreign-controlled companies, under the 2003 tax reform. Under treaties to prevent double taxation, until now Israeli companies paid only the 5% difference in the tax rates.
Another advantage for companies in Luxembourg is that taxes are levied only if shareholders withdraw dividends, whereas under Israeli law, tax is levied on a company’s capital gains, regardless whether or not it distributes a dividend. Luxembourg also does not levy a tax if a company invests its profits in the company. Israeli companies have therefore used Luxembourg as a pipeline, setting up companies through which they made investments worldwide.
Published by Globes [online], Israel business news - www.globes.co.il - on April 2, 2006
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006