Treasury to slash rates of tech firms to fight tax havens

Medium and large technology companies will pay sharply lower taxes in Israel starting next year as part of a global plan to combat firms shifting profits into tax havens.

The tax rate for tech companies with annual revenue higher than NIS 10 billion ($2.6b.) will be set at 6 percent and 4% for the distribution of dividends, the Finance Ministry said on Thursday.

Israel levies a 25% tax on companies and 30% on dividends.

A spokesman for Finance Minister Moshe Kahlon said the plan will be part of the 2017-2018 budget and that Israel is joining all OECD countries.

The OECD in 2015 developed a plan called Base Erosion and Profit Sharing, or BEPS, to help nations align their corporate tax policies. It has been endorsed by the Group of 20 leaders.

According to the OECD, revenue losses from companies shifting to no- or low-tax environments are as much as $240b. a year, or 10% of global tax income revenue.

Under BEPS, tech companies will be required to have their intellectual property (IP) from products developed listed in the same country as its research and development center.

Israel is home to more than 250 multinational R&D centers, including Google, Facebook, Apple, Microsoft and Intel. The ministry said most of them list their IP in countries other than Israel, including in Ireland, the Cayman Islands, the Channel Islands and the Virgin Islands, to avoid paying taxes.

“They will have two options,” the spokesman said. “Move their R&D to another country, or list what they develop in Israel in Israel.”

The tax proposal has been approved by the Israel Tax Authority, the Chief Scientist’s Office and other government offices, he said.

Some 12% of Israel’s output and 40% of industrial exports stems from the country’s hi-tech sector.