Hewlett-Packard (NYSE:HPQ) subsidiary HP-Indigo, will prefer investing in countries other than Israel, even though Indigo's founder and general manager wants to channel addition investment to Israel. There is also a risk that HP-Indigo will halt all its activities in Israel and move them overseas, HP-Indigo director of finance Allon Maoz told "Globes".
The threat came in response to a Ministry of Finance proposal to amend the Law for the Encouragement of Capital Investments. The law stipulates that multinational companies will pay no companies tax and no tax on dividends on investments over NIS 1 billion made south of Arad or north of Carmiel.
Maoz claims that the high eligibility threshold and restricted geographical area meant that only semiconductor companies could benefit. "Only semiconductor companies make such large single investments. Even a giant like Hewlett-Packard makes initial investments of less than $100 million.
"In addition, after a company invests in a plant in Arad, at the request of the Israeli government, it would be a waste of resources to build another plant. They are creating an investment track that is irrelevant to foreign investors and uncompetitive to what other countries, chiefly Ireland and Singapore, are offering."
Maoz added, "Hewlett-Packard currently has $80 billion in sales a year, and has 130,000 employees in production facilities, mainly in Ireland and Singapore. It invests over $1 billion. Indigo, acquired by Hewlett-Packard in 2002, has built a plant in Kiryat Gat and another one in Singapore. Its management approved the construction of the Israeli plant after obtaining the same tax breaks offering by Ireland."
Maoz warned that if Hewlett-Packard was ineligible for the tax breaks under the foreign investors' track, "I doubt that the company will continue investing in Israel, especially when we have an alternative plant in Singapore." He noted, "70% of Indigo's suppliers are in Israel, and if it sends its production overseas, thousands of Israeli suppliers will also be replaced by foreigners."
Commenting on the possible abandonment of Hewlett-Packard's current investments in Israel, Maoz said, "We invested tens of millions of dollars in Italy, but within a short time, when it turned out to be uneconomical, we wrote it off and moved everything to Singapore."
Intel Israel finance and administration manager Aviad Avni also says the new law will hurt his company. He said that while Intel (Nasdaq:INTC) has invested over NIS 1 billion in Israel, the foreign investors track under the new law was not worthwhile for it, since Intel had already invested in building a plant in Kiryat Gat, which was outside the geographical limits of the law.
Published by Globes [online] - www.globes.co.il - on August 17, 2004