The responses in Israel to US President Donald Trump's tax reform were mixed. Dr. Zvi Marom, chairperson of the Israel Association of Electronics and Software Industries in the Manufacturers Association of Israel, says that the cut in the US corporate tax rate from 35% to 21% can potentially do great damage to Israeli high tech. Yael Vizel, founder and CEO of startup Zeekit, believes that the anxiety is exaggerated. "The important point to keep in mind is that in the end, Facebook and Google haven't put their development centers here because of financial conditions. They're here because of the human capital," she declares.
"Trump's tax reform is designed to bring money and intellectual property back to the US," Marom says. "The US is starting to use a vacuum cleaner on the world, and in this case, we're one of the clients on the receiving end. Trump is taking steps that are economically logical for him, not the rest of the world.
"Imagine that the section of the US tax reform that stipulates non-recognition of R&D conducted by multinational US companies outside the US takes effect. What will Intel, which has R&D activity here, do? Or Johnson & Johnson, which has several centers here? Israeli startups and growth companies will also have an incentive to move to the US. Half of the Israeli startups founded in the last year were not opened in Israel."
Vizel's startup has 35 employees in the US and Israel. The company founders, who working in topographical mapping technology during their service in the IDF, were inspired by this to found a computer vision and image processing company that provides simulations of clothing measuring for the ecommerce sector.
"The new reform makes the US market very attractive for many marketing, business, and also operative activities, and even makes us think about bolstering activity in the US at the expense of new markets," Vizel says. "There is another byproduct of the reform: the dollar is becoming stronger and more marketable. As an Israeli company with a development center in Israel and revenue mostly in dollars, this enables us to take better advantage of the shekel and release more shekels for the salaries of our engineers. It turns out that this strengthens the development center in Israel.
"The anxiety about the closing of development centers by multinationals is unjustified. Even if there is some truth in it, these companies are opening these development centers here only because of the human capital - the topnotch engineers and the innovation created here in Israel are not something you can find a replacement for, even with tax benefits. In any case, these companies have extensive tax benefits in Israel."
Marom welcomes the minister of economy and industry's intervention, and still hopes that Netanyahu will persuade Trump to exempt Israel from the reform on the basis of their close relations. If this does not happen, he says, "We'll have to use our heads. There are a long series of measures, for example seeing where there are faults in our corporate taxation vis-à-vis the US and coordinating tax policy and seeing which incentives can be granted to Israeli entrepreneurs, so that we don't become an exporter of human capital. If we lose our innovative momentum, we'll be in bad shape.
"The government is doing almost nothing. Its proportion of investment in R&D is less than 10% of all investment, and in a calculation conducted, it turned out that the real government money in high tech is only 3%. If the private money goes back to the US, what will we do with R&D? Look at the UK, the Germans, and the French. They are preparing for the US turning inward. In Berlin, the volume of venture capital has tripled over the past two years."