"We have not asked for any tax benefit from anyone in the government in relation to registration of intellectual property for Teva. We have had an open dialogue with the government for three years on the tax regime, because we think that the tax rules on intellectual property cause Israel damage in the billions of shekels. This is because it encourages companies, both foreign and Israeli, to hold intellectual property outside of Israel," a senior Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) manager said today, following "Globes'" revelation yesterday that the company would start registering intellectual property outside Israel in order to save millions in taxes. Intellectual property is the main component in the value of a technological product, yielding the most taxation.
"We are not even certain that the change we are proposing will benefit Teva," the manager said. "In Israel there are dozens of international companies that develop technologies and know-how, like Intel, Microsoft, Google, Applied Materials, and all of them have development centers in Israel. But Israel is changing from a 'start-up nation' to a 'cost-plus nation', because all the intellectual property has been moved out.
"Israel is becoming a sub-contractor, with the know-how no longer belonging to it, and, like any sub-contractor, it is now dealing with the secondary work, the development. In this way, we are wasting our best resource. Incidentally, this process applies mainly to international companies, not particularly to Teva."
Sources at Teva explained today that change in the tax regime "not necessarily a zero tax rate, but a reasonable tax rate" would enable international companies to move a great deal more activity here. They stress once more that the current tax regime provides no tax benefit in this area, unlike in many other countries, and "this is a mistake".
Teva also responded to the claim that such tax benefits will represent a negative incentive from the point of view of production, and that some companies will decide to register intellectual property, but to move production activity to India or China, harming employment. "We have a serious disagreement with anyone who makes such an argument," the sources said. "We think that royalty payments and tax payments will only rise in the end. This fear is unjustified, at least mostly. The world is open, and companies choose to produce where costs are low. If the government wants to encourage production, it can do what the US administration is doing by setting up a fund to restore activity to the US that finances part of the cost."
The sources at Teva stress that the dialogue currently being conducted with the Ministry of Finance "is not just for Teva. We see the general picture, and how multi-national companies are changing. Anyone who tries to portray the matter as though Teva came along to ask for tax breaks is being misleading.
"Teva makes every effort to concentrate as much as possible of its intellectual property in Israel, both because we are an Israeli company, and because it's easier for management purposes. Only recently we moved activity and intellectual property from one of the countries to Jerusalem."
Published by Globes [online], Israel business news - www.globes-online.com - on June 19, 2013
© Copyright of Globes Publisher Itonut (1983) Ltd. 2013