Tax breaks urged for venture lending cos

Current law denies Israeli companies millions of dollars in venture loans, an expert claims.

16 June 08 9:52, Hadas Magen

"A change in policy by the Israel Tax Authority and the Chief Scientist will enable Israeli companies to obtain millions of dollars in investment from venture lending funds," claims Dr. Ayal Shenhav, a specialist in taxation and venture financing at law firm Danziger, Klagsbald & Co.. Shenhav was speaking at an international conference organized by US law firm Morrison & Foerster LLP.

According to Shenhav, there has been a steady increase in demand for venture loans in recent years and particularly in recent months. These are loans from funds which lend capital to start-ups in deals that give them a holding smaller than that required by venture capital investors. Among the leading venture lending funds are Israeli fund Plenus Venture Lending Fund, Europe's Kreos Capital, and EVP.

Shenhav claims the restrictions imposed by the R&D law, under which the Chief Scientist operates, on taking intellectual property out of the country, constitute a barrier preventing more funds from entering Israel. In addition, current tax laws set a high 17.5% rate of tax interest payments by Israeli companies to US funds. This taxation, says Shenhav, either deters US funds from granting loans to Israeli companies, or makes such loans more expensive.

Shenhav feels believes that interest on such loans should be exempt from this tax, in the same way as foreign venture capital funds are exempt from tax on their activity in Israel.

Published by Globes [online], Israel business news - www.globes-online.com - on June 16, 2008

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