Caesarea Foundation profits from tax exemption

The State Comptroller criticized the tax exemption for the business operations of the Rothschild Caesarea Foundation.

Politicians who lost their Knesset seats or ministerial posts in January's elections are lining up for one of the most sought-after jobs in the public sector: vice chairman of Rothschild Caesarea Foundation. The foundation's vice chairman manages operations for the Baron Benjamin de Rothschild and his wife, Ariane de Rothschild. She is the vice president of the Caesarea Edmond Benjamin de Rothschild Corporation, which manages the family business and 12 charities around the world. Candidates for the job include former Kadima MKs Dalia Itzik and Yaakov Edri, outgoing Minister of Industry, Trade and Labor Shalom Simhon.

Extensive business operations and a tax-exempt status have paid off handsomely for the Rothschild Caesarea Foundation and its subsidiary Caesarea Edmond Benjamin de Rothschild Development Corporation. The foundation's financial resources increased by over 150% from NIS 510 million in 1998 to NIS 1.3 billion in 2010, but despite a NIS 476 million liquidity surplus at the end of 2010, the foundation donated only NIS 21 million to promote higher education in Israel.

The figures were published by the State Comptroller in the annual report for 2010-11, published in May 2012. Former State Comptroller Micha Lindenstrauss examined the authorities' relationship with the foundation, and their actions to realize its objectives. The report, which also criticized the Israel Tax Authority and the Government Companies Authority, examined the handling of flaws in the foundation's operations mentioned in two of the State Comptroller's previous reports from 2000 and 2007.

The Rothschild Caesarea Foundation was founded in 1962, under an agreement signed between then-Minister of Finance Levi Eshkol and the Baron Edmond de Rothschild. The agreement stated that the government and the Rothschild family would jointly own land, bought by the family in the country before Israel's independence, and through the Caesarea Development Corporation, the foundation would promote higher education. Under the agreement, the government transferred ownership and leasing rights to land in Caesarea.

The agreement was ratified in 1989 and extended to 2022 by then-Minister of Finance Shimon Peres. In 2011, Caesarea had 4,700 residents, and the foundation had almost 13,000 dunam (4,250 acres) of land available for development, of which 286 dunam (71.5 acres) was zoned for residential use and the rest for agriculture. The foundation has been exempt from income and betterment taxes on its revenue. The State Comptroller found that the tax exemption originated in promises by top government officials, including finance ministers to anchor the exemption in law. Although no such law has ever been passed, the tax exemption has remained in effect.

The controversial tax exemption has already caused confrontations between the foundation and the Tax Authority. In 2010, the Tax Authority demanded the foundation pay taxes on NIS 145 million revenue in 2004-08. The dispute reached the courts. The State Comptroller also found that, in 2006, then Government Companies Authority director general Eyal Gabay and then-Accountant General Yaron Zelekha proposed cancelling the foundations tax exemption, liquidating it, either with consent or by court order, or through legislation, and to use the foundation's financial reserves.

The threat did not impress the ministers at the time, as the State Comptroller states: "Although this was a comprehensive document, which raised substantive and principle questions, and even though hundreds of millions of shekels accumulated by the foundation were at stake, the four ministers did not solve the problem, or even submit it to a cabinet discussion or decision by the prime minister."

Lindenstrauss also criticized the distribution of the regional wealth from the foundations' revenue from the Caesarea industrial park, which totaled NIS 65 million in 2009-10. The adjacent local authorities, Or Akiva, Jasr A-Zarka, Pardess Hannah-Karkur, and Binyamina-Givat Ada, requested to annex part of the Caesarea industrial park. The foundation objected, but agreed to a compromise, under which it would finance education programs in the local authorities by $3.5 million a year in 2009-22.

Lindenstrauss recommended that the government and the Rothschild Foundation review the ratio of foundation's donations to its current resources. "Avoiding this measure is liable to result in the use of the money for purposes other than the objectives of the foundation," he wrote.

Published by Globes [online], Israel business news - - on March 3, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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