EMG exempt from Egyptian taxes, too

Tax Authority document: Under Egyptian tax law, because EMG was set up in a free-trade zone in Egypt, the company is exempt from taxes on its revenue.

Egypt's East Mediterranean Gas Co. (EMG) is exempt from taxes on its revenue in Egypt, according to the letter of commitment that the Israel Tax Authority gave EMG shareholder Merhav Group, controlled by Yosef Maiman. The document was disclosed at a hearing in the Jerusalem District Court today. It states, "Under Egyptian tax law, because EMG was set up in a free-trade zone in Egypt, the company is exempt from taxes on its revenue."

Until now, EMG has claimed that it pays taxes and royalties in Egypt. The documents disclosed today in response to a petition by Delek Group Ltd. (TASE: DLEKG) and its partners, and after the state's statement of response was delayed by three weeks in order to obtain Maiman's position.

Merhav pays a tax rate of 45% in Israel on its EMG holding. In view of the Sheshinski committee's interim recommendations to raise taxes on current and future oil and gas reserves in Israel, Delek and its partners will pay a tax rate of 66% on their gas discoveries in Israel. Delek and Noble Energy Inc. (NYSE: NBL), demanded the state disclose the tax exemption agreements with EMG.

Jerusalem District Court Judge Noam Sohlberg said, "There is a strong point in the claims of the petitioners [Delek and Noble Energy] which intend to compete against a third party [EMG]. They have a strong interest in the publication of the content of the commitment in order to know it and to inform the public of its terms. They will therefore be able to protect their rights as competitors and for equal competition in the market."

Maiman owns 20.6% of EMG through Ampal-American Israel Corporation (Nasdaq: AMPL; TASE:AMPL) and his private company Merhav MNF Ltd. EMG's tax arrangement was disclosed by the Jerusalem District Court in response to a petition filed on August 16 by Delek, Noble Energy, Ratio Oil Exploration (1992) LP (TASE:RATI.L) and mutual and provident funds of Halman Aldubi Investment House Ltd.

The petition was filed on the basis of the Freedom of Information Law. The petitioners asked for the disclosure of several documents, which they claimed the Sheshinski committee used for reviewing fiscal policy on oil and gas discoveries. The documents the petitioners asked to be disclosed were "A letter of commitment by the Israel Tax Authority to grant an exemption to Egyptian supplier EMG".

The petition was filed after "Globes" revealed that EMG had a sweeping 20-year exemption on paying taxes in Israel, as part of a convention signed between the Israeli and Egyptian governments on June 30, 2006.

Delek and Noble Energy are partners in Yam Tethys, Tamar, and Leviathan. Ratio is also a partner in Leviathan. Delek and Noble compete against EMG to supply natural gas to Israel Electric Corporation (IEC) (TASE: ELEC.B22) and private customers. Delek and Noble Energy argue that the tax exemption for a foreign company constituted discrimination against Israeli gas.

Published by Globes [online], Israel business news - www.globes-online.com - on November 11, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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