Israel Bonds registered in tax haven

Tax experts say registering in the British Virgin Islands protects bond buyers' anonymity.

Sources inform ''Globes'' that Development Corporation for Israel/State of Israel Bonds, which sells government bonds to investors around the world, operates through a company registered in the British Virgin Islands tax haven.

Although registering the company in a tax haven is legal, so long as this is properly reported in Israel, it raises the question why Israel Bonds, which is exempt from Israeli taxes, chose to do so. The British Virgin Islands is an autonomous British overseas territory in the Caribbean, and has no corporate or individual income tax. The reason for registering a company in a tax haven is to save on taxes, but this is apparently not Israel Bonds' motive for registering Israel Bonds International Inc. in the British Virgin Islands, given that Israel Bonds is a tax-exempt NPO.

Tax experts believe that Israel Bonds International is registered in the British Virgin Islands to protect the anonymity of investors in Israel Bonds. International tax expert Adv. Dr. Avi Nov says that there are many advantages of the territory's tax haven. "The great flexibility in establishing a company in the Virgin Islands makes it an ideal tax haven. There are no reporting requirements to the authorities and the duty of confidentiality applies. Although the Virgin Islands has tax treaties with several countries, including agreements for the sharing of information, their application is limited," he says.

"There are NPOs that seek to maintain confidentiality, especially about their donors, and they also don’t want to deal with bureaucracy, so they register companies in tax havens. Companies in the Virgin Islands are exempt from filing reports, bureaucracy, and transparency."

"It could be that the idea was to allow donors to transfer money from their countries of residence. We're talking about money that is not known to the tax authorities in their home countries, and which can be used for donations while preserving the donors and the money's anonymity. In the Virgin Islands, it is possible to use a company to transfer money without the strict regulations in Israel, for example, blocking it. It's also possible to use a company to obtain money that no one wants known to exist. I assume that this is the reason for registering Israel Bonds International in the Virgin Islands," says Epstein Rosenblum Maoz partner Yair Benjamini.

"Although this is speculation, but it seems to me to be the most logical reason. Maybe there was Jewish money overseas, and they wanted to allow Jews to use money that they hadn’t reported for donations. If Israel Bonds International was registered in Israel, the Registrar of Associations would demand a full list of donors. In the Virgin Islands, there is no regulator who will ask for a list of donors, and no regulator to ask about the sources of income. It seems that the only logic to this step is to protect donors and to give them some kind of flexibility in the company's management and transfer of money."

Former Tax Authority director general Gideon Bar-Zakkai also believes that confidentiality was a key factor in the decision. "It's quite likely that the presence of the company in the Virgin Islands is intended to allow foreign investors and donors to enjoy immunity," he says.

Nov adds that this is not the first time that the Israeli government has used tax havens. "If you look at the financial reports of Israel Electric Corporation (IEC) (TASE: ELEC.B22), you'll see that it has established companies in tax havens. There are other government companies, some controlled by the Ministry of Defense, which were set up for reasons of convenience, confidentiality, or the lack of transparency of companies in tax havens.

"Obviously, you can argue about the propriety about the government or the prime minister using tax havens, and what message the government is sending the public. Basically, it's telling the public, 'We can do it. Learn from us, and you can do it too.'"

The Ministry of Finance said, "Israel Bonds International is registered in the Virgin Islands. It is a non-profit organization which serves operational needs. The company was founded with this structure 20 years ago. The company has corporate governance, including a board of directors, internal auditor, and external auditor."

Raising $34 billion in 60 years

Israel Bonds was founded in 1951. Its first mission was to encourage the purchase of Israeli government bonds among US Jews. It raised $34 billion through 2011 in sales of bonds to individuals and institutions. In 2013, it raised a record $1.12 billion. The proceeds are used to finance the Israeli government's current activities, including covering the deficit.

Published by Globes [online], Israel business news - www.globes-online.com - on February 24, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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