Senior Ministry of Finance sources accuse Israel Chemicals (TASE: ICL: NYSE: ICL) of being behind false reports about talks on a deal whereby the state will supposedly make concessions to ICL on the Sheshinski taxation reforms in exchange for billions of shekels worth of investment by ICL in its Israeli operations. It was also reported recently that the Attorney General had ordered the Ministry of Finance to remove the legislative amendments enacting the Sheshinski reforms from the draft Economic Arrangements Bill, even though the Attorney General himself has not discussed the matter up to now, while his staff actually recommended including the amendments in the draft.
"ICL is trying to drive a wedge and cause disputes between the government authorities and the officials who are dealing with its affairs, with the aim of sabotaging the government's efforts to regularize its relationship with the company," the Ministry of Finance sources claim. The sources add that, in the past few days, several discussions have been held with the Ministry of Justice on including the Sheshinski 2 legislation in the Economic Arrangements Bill, and that no objections had been raised to this. "We have full confidence in the Attorney General that he will act in such a way as to expedite the legislation," the sources said.
Sources close to ICL told "Globes" that there was indeed no concrete proposal on the table on investment in exchange for cancellation of the taxation, but they said that a detailed and comprehensive dialogue was taking place with government agencies, among them the Ministry of Finance, on the implications of the tax environment for ICL's business, and that "the Ministry of Finance cannot deny this fact and the very existence of the dialogue."
For the time being, ICL is not investing in development of its plants in the Negev, in accordance with decisions made by its board of directors in March and August last year, in response to the Sheshinski Committee recommendations. "The state must decide on its policy, and carry it out as soon as possible," a source involved in the affair told "Globes." "As of now, we're in the worst possible situation, because the government isn't getting a penny, and ICL's tactics are hurting the company's business in order to put pressure on the government."
The proposal currently being considered by the government includes an excess profits tax on natural resources other than oil and gas, and a change in the royalties rate set in the Mining Ordinance. One of the possibilities under consideration is to integrate the legislation within the existing law enacted to implement the Sheshinski Committee's recommendations on oil and gas profits. The distinction between mining and industry will also be made clear for the purpose of eligibility for the tax benefits in the Law for the Encouragement of Capital Investments.
The Sheshinski 2 Committee dealt with the fiscal regime for all natural resources, other than oil and gas in order to equalize the tax regime for all non-renewable natural resources: minerals, mineral water, and quarry materials (mainly aggregates produced in mines) and impose excess profits tax on rare resources. The main recommendations pertain to potash, bromine, magnesium, and phosphates (mined at Mishor Rotem, and in the future, perhaps also at Sde Bariri).
In November 2014, the socioeconomic cabinet approved the committee's recommendations unanimously, despite the objections of then-Minister of the Economy Naftali Bennett and then-Minister of National Infrastructure, Energy, and Water Resources Silvan Shalom. At that time, the Ministry of Finance hoped to implement the committee's recommendations through an ordinary legislative change, but was not able to complete the preparation of the bill and submit it to the cabinet.
The Ministry of Finance hopes to have the legislation passed, which is likely to increase state revenues by $400-500 million, starting in 2017 (past regulations will still apply in 2016). The main source of revenue is potash, on which the operating profit margin amounted to 60% in 2008, thanks to the global cartel operating at that time. The profit margin fell to 36.5% in 2013.
The committee's main recommendation was to impose an excess profits tax in two brackets, which would apply only beyond a 14% return on the accounting value of the assets. A 25% tax rate will apply to returns between 14% and 20%, and a 42% rate to returns of over 20%. The current royalties regime of 2-10% of sales will be replaced by a uniform 5% rate on all resources. The state's share of the developers' profits is meant to vary from 47% to 55%. For the sake of comparison, the state's share of the gas developers' profits varies from 52% to 62%.
"ICL is presenting the government with a plan for over NIS 5 billion in investments in the Negev"
ICL said, "Following the cabinet resolutions to ensure and encourage investments and employment in the Negev, and especially in the eastern Negev, ICL has been conducting a continuous dialogue in recent months with the involved parties in the cabinet and the Knesset.
"In this framework, ICL is presenting an investment plan for the coming years amounting to NIS 5 billion in various projects in the eastern Negev. In addition, ICL is presenting complete, detailed, and comprehensive information about the effect of the cabinet decisions (the deviation from the Law for the Encouragement of Capital Investments, financing the national project for protecting hotels at the Dead Sea, and the Sheshinski 2 Committee recommendations) on the business environment facing ICL, which does not facilitate investments in Israel
"ICL is finding a positive response in the government, and the realization that its huge investment in the Negev will bring about growth and development and encourage employment and commerce, to the benefit of the residents, the employees, the state, and the company. ICL hopes that this dialogue will make it possible to devise proper arrangements for an array of matters that will enable it to resume its investments in Israel, after these investments were halted by decisions of the ICL board of directors in March and August 2014."
Published by Globes [online], Israel business news - www.globes-online.com - on July 21, 2015
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