The Knesset plenum today passed the trapped profits law in its second and third readings. The vote was 38 in favor to 21 against. The new law will allow companies to realize profits while paying the companies tax at a reduced rate, and a promise to invest 50% of the profits in Israel over one year. The estimated tax revenues from the law are NIS 3 billion.
The law includes a directive, valid for one year, under which a company's accumulated revenue through the end of 2011, and on which it has not yet paid the companies tax, it will be eligible to pay a reduced tax rate, in accordance with the formula set out in the law. This formula states that to the extent that a company chooses to unfreeze a larger part of its revenue, the tax break to which is eligible will increase, but the tax rate will not be less than 6%.
The law is intended to enable large companies, which have benefited from tax breaks under the Law for the Encouragement of Capital Investments, and, after accumulating large profits, now wish to distribute dividends or use the profits for foreign investments, to do so while paying a reduced rate on the companies tax.
The law amends, by directive, the current legal situation, which requires companies to pay high tax rates on their tax breaks before distributing dividends or using profits for foreign investments.
Knesset Finance Committee chairman MK Moshe Gafni (United Torah Judaism) told the plenum that the law was problematic and not ideal, but that in view of the budget deficit, it ought to be passed as a directive.
MK Zaehava Gal-On (Meretz) called on the plenum to vote down the bill, which she called "vermin". She said that the law was a prize for companies which were not taxed properly, and that the law was the final "discordant note by the Netanyahu government."
Published by Globes [online], Israel business news - www.globes-online.com - on November 5, 2012
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