$2b Habana Labs sale is windfall for Israel Tax Authority

Habana Labs chip  / Photo: Company website

State revenue from the Intel acquisition will be an estimated $350-500 million.

State tax revenue from the sale of Habana Labs to Intel for $2 billion in cash will total $350-500 million (NIS 1.25-1.75 billion). The estimate is based on assessments that at least 50% of the shares in the AI chip company are held by its Israeli founders and employees.

Will the tax revenue help the state narrow the budget deficit? "Up until the latest deal, exits this year totaled $3 billion, and we have not seen a penny from it," a senior Ministry of Finance source told "Globes." Even if the money arrives, the Ministry of Finance will be unable to use its in the coming months as part of the continuing budget, because the Accountant General has legal authority to allocate each month only one twelfth of the 2019 budget approved by the Knesset. Even if the state receives billions of shekels, it will provide no relief for the public in Israel. The money will, however, help narrow the budget deficit.

Adv. Leor Nouman, head of the S. Horowitz & Co. law firm's tax practice group, believes that the proceeds for the state will be in the $350-400 million range. "It can be assumed that the tax base of the founders and employees is negligible, and most of the proceeds from the sale therefore constitutes their capital gain from the sale of the shares. Assuming that they are substantial shareholders, the capital gain tax rate that the founders will pay is 30%, plus a 3% surtax, making a total of 33%. Assuming that the options and shares allocated to the employees are according to Plan 102 of the Income Tax Ordinance, they will pay a 25% tax rate," Nouman states. He added that the working assumption is that an additional 10% of Habana Labs' shares are held by Israeli investors, who will also pay a 25% tax rate, plus a 3% surtax.

Adv. Tali Yaron-Eldar from the Yaron-Eldar, Paller, Schwartz & Co. law firm, a former commissioner of the Income Tax Authority income and property tax commission, says that tax revenue on the sale could reach $500 million, and that "in a sales of shares in an Israeli company, foreign shareholders who invested in the company will usually be exempt from capital gains tax in Israel."

Another question is what Intel will do in the future with the company it has acquired. Adv. Boaz Feinberg, head of the tax and financial regulation department in the Zag-S&W law firm, says, "There is a question whether Intel will leave the company in Israel or transfer its intellectual property activity overseas. There are currently acrimonious disputes between the Tax Authority and companies that are expressed in the recently published Broadcom ruling."

Published by Globes, Israel business news - en.globes.co.il - on December 17, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Habana Labs chip  / Photo: Company website
Habana Labs chip / Photo: Company website
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