10/16/2012 23:11–Offshore companies and stock options came under the microscope of the Committee for Reviewing Cash Box Companies and Holding Companies when it met representatives of the Israeli CPA Institute, Law Society and Tax Advisors Society on October 10.

According to an announcement of the Israeli Tax Authority (ITA) on that date, the aim was to receive feedback before the committee makes its final decision about what to propose.

The committee is reportedly intent on taxing the annual undistributed profits of cash box companies and holding companies, and is therefore considering two alternative possible proposals.

The first alternative proposal calls for individual shareholders to be taxed on half the undistributed profits of cash box companies and half the passive undistributed profits of private holding companies. None of these terms are defined in the ITA announcement.

That would presumably result in a 15 percent tax charge on such profits.

The second alternative proposal calls for all highly profitable companies (not defined) to possibly be subject to interest at a rate of 4%- 8% on undistributed profits.

Stock options The committee is also reviewing the tax treatment of options for employees – no details are included in the announcement.

When? According to the announcement, the committee is expected to finish its work shortly and will then report to the finance minister.

It remains to be seen what may eventually be legislated.

Comments These are important topics, as substantial amounts may be at stake for many people – from successful businessmen and investors to employees in many Israeli companies.

Therefore the committee really should publish its proposals in draft form and consult the public.

Israel already has rules for taxing undistributed profits of controlled foreign corporations, foreign professional corporations and companies controlled and managed from Israel. It is not clear why more rules are proposed.

Moreover, the committee seems to be going the wrong way down a one-way street.

Taxing annually the retained profits of foreign subsidiaries doesn’t usually work well – those profits are often needed to pay for worthy acts like export marketing or financing customer credit. So exceptions will be needed for various foreign subsidiaries of Israeli firms…Read More>>

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