Sources inform ''Globes'' that the Ministry of Finance has instructed Israel Tax Authority director general Moshe Asher to examine whether it is legally possible to reduce the tax breaks given to Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA). The review is in response to Teva's decision to fire 800-1,000 employees in Israel.
Teva currently pays a zero tax rate, under the strategic track in the Law for the Encouragement of Capital Investment, even though this track has been abolished. But Teva will continue to be eligible for benefits under the current terms for several more years. The Ministry of Finance is now examining the possibility of shortening the eligibility period.
The Ministry of Finance cautions, however, that Teva has done nothing to contravene the law, since there are jobs conditions attached to the tax breaks granted the company. "Formally, there has been no breach of the law, and no one made the tax breaks subject to jobs," said a ministry source.
The Ministry of Finance believes that there is little chance to legally reopen the agreements, but it wants to examine every option. Furthermore, even if there is a legal possibility of reopening the agreements, the ministry is examining whether it is worthwhile to do so, or if such a measure would damage the economy as a whole.
The Ministry of Finance is concerned that such a step could cause Teva to move operations overseas, or register its intellectual property abroad - a step that the company has been considering for a long time. There are countries that already grant tax breaks for registering intellectual property. The ministry will also examine the repercussions of such a move on the Israeli economy, jobs, and exports.
The Ministry of Finance notes that Teva's tax breaks were changed when the Law for the Encouragement of Capital Investment was amended in 2010, and that the new law has no zero tax track. "The Ministry of Finance constantly reviews the Law for the Encouragement of Capital Investment in order to maximize economic activity and jobs, alongside the efficient use of public resources. The old law was changed at the Ministry of Finance's initiative," said the ministry today.
The Ministry of Finance also notes that the new law includes a "special preferred" track with a 5% rate in the periphery and 8% tax rate in central Israel. This tax break is not automatic, but subject to the size of the investment, and requires approval by three officials: the director generals of the Ministry of Finance and the Ministry of the Economy, and the director general of the Tax Authority. The tax break is granted only after they are persuaded that the investment has a clear added value and substantial contribution to Israel's economic activity. To date, only Intel Israel Ltd. has received this tax break since 2010 for its investment in its Kiryat Gat fab.
Published by Globes [online], Israel business news - www.globes-online.com - on October 14, 2013
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