“To prevent the flight of high-tech companies, all three dimensions of the industry must be dealt with: Entrepreneurs; companies and foreign investors. The problem is not solely taxation, but also a matter of corporate and securities laws,” Kost, Forer & Gabbay KPMG tax department manager, Doron Kochavi told “Globes” today.
Kesselman & Kesselman tax partner Avi Heller believes the key to properly handling the taxation of high-tech companies is to exempt foreign investors from paying taxes on the capital gains they make from selling shares in Israeli companies.
Kochavi recently presented a detailed proposal to foster growth in the high-tech industry. The plan involves cutting capital gains tax to 20% and imposing taxes for structural changes (mergers and splits) on Israelis. These taxes would be levied only when money changes hands.
Kochavi also proposes making Israeli corporate law more in tune with US procedures, particularly with regard to directors’ responsibilities. He suggests adopting the US tax model of not taxing non-citizens(in this case, non-Israeli citizens). In the first stage, this approach should be used with investments by foreign residents, including corporations, in Israeli high-tech companies.
Kochavi emphasized that the cancellation of taxation of foreign residents would not substantially affect State revenues, because foreigners are already mostly exempt from taxes. However, canceling the taxation would lift the main barrier currently hindering foreign investment in Israeli companies. The taxation lessens Israel’s attractiveness compared with other countries, he said.
Kochavi told “Globes” that the Income Tax Commissioner is now actively assisting high-tech companies in dealing with current tax restrictions. He particularly praised the efforts of Commissioner Yoni Kaplan and his deputy Oscar Abu-Razek. “The problem is that the law is not up-to-date, especially in light of the market climate and security situation,” claims Kochavi.
“My main point refers to the Barak government,” adds Kochavi. “Two critical years for high-tech have gone by, and he did nothing. Sharon at least listens to us. Despite his very heavy workload this month, he has devoted more time to the subject than Barak did during his entire term. I see a wind of change coming from the Prime Minister’s Office and Ministry of Finance, because there are people who understand how important the macroeconomy is.”
Published by Israel's Business Arena on 3 April 2001