Israeli tech cos could be eligible for US aid

President Donald Trump / Photo: Tom Brenner, Reuters, Reuters

Israeli companies with a US presence may be entitled to tax rebates and other benefits under the $2 trillion federal economic emergency program.

In order to help sustain US economy in the coronavirus crisis, a $2 trillion federal aid plan has been introduced that includes assistance to small and medium-size businesses through loans and deferral of tax payments. For many Israeli startups and growth companies, the US is their target market, and they often run much of their business from the US. They could therefore benefit from some of these measures.

The most significant benefit that could apply to many Israeli technology companies is for companies employing up to 500 people, and is designed to ensure continued employment and payment of worker salaries in these companies. The benefit is in the form of a loan the size of which is determined according to the company's average monthly compensation cost, up to a ceiling of $10 million per company or $100,000 per employee. The loans will be granted on a track called PPP (paycheck protection program) made available by the US Small Business Administration.

A company that borrows money on this track can apply for forgiveness of the debt or part of it, if it demonstrates that it used the loan proceeds to continue paying wages and that it has not laid off any workers or reduced anyone's pay. The track is intended for companies that show that they need loans to continue in business, and is conditional on the company having no other federal loans for small businesses.

According to Adv. Yael Hauser and Adv. Yair Geva of Herzog Fox & Neeman, in determining how many people a company employs, the US Small Business Administration examines counts employees of associated companies as well. In certain cases, they say, the Small Business Administration may consider investment funds that hold minority interests in several startup companies to be controlling shareholders, and therefore consider all the other companies in the fund's portfolio as associated companies for the purposes of determining the number for employees.

"The intention of Congress was not to prevent startups from participating in the program, and the industry expects that the Small Business Administration will shortly issue clarifications on this matter," says Geva, who heads Herzog Fox & Neeman's Emerging Companies Practice. "For the time being," he adds, "the consensus is that a right of veto possessed by a group of investors or a class of shares does not constitute control." According to Geva and Hauser's study, shareholders' rights that could indicate control of a company are the ability to appoint a number of directors amounting to a quorum at board meetings or shareholders meetings, veto rights on executive decisions of the company, such as a veto on dividend distributions, control of a company's budgets, the right to hire or fire managers, to take on debts and commitments below a material limit, and rights to mortgage assets.

"Israeli startups with substantial activity in the US that have been affected by the coronavirus pandemic should certainly take a look at PPP loans," says Adv. Dotan Barnea, co-chair of the Israel Practice Group at US law firm Lowenstein Sandler, who specializes in technology. He adds, however, that "the loans will be granted on a 'first come first served' basis, and US businesses under foreign ownership or control still have to show that the US company is managed by US citizens or green card holders."

Additional benefits under the law are tax breaks for employers. Among other things, the law provides for deferral of social security payments, and tax rebates for losses going back five years, with no ceiling on the amounts of losses for which rebates can be claimed. Companies that can demonstrate that they have suffered from a decline of at least 50% in their revenue because of the crisis can obtain a tax rebate of up to 50% on wages paid before the crisis. For companies with up to 100 employees, the rebate will apply to all employees earning up to $10,000, and for a company with more than 100 employees, the rebate will apply only to employees unable to work during the crisis.

Plans to aid technology companies are under discussion in Israel too. An important component of the program will probably be state guarantees for loans taken by technology companies. By this means, by allocating a certain sum, probably in the hundreds of millions of shekels, the state will be able to engineer a process that will inject a sum 20-30 times higher to the technology industry.

Last week, the Innovation Authority convened a virtual forum of representatives of the industry, among them representatives of IATI (Israel Advanced Technology Industries), the Israel Growth Forum, BATM CEO Zvi Marom, Yoram Tietz, managing partner of EY Israel, digital healthcare entrepreneur Jonathan Adiri, and representatives of the relevant government bodies, among them the Ministry of Finance, the Israel Tax Authority, the National Economic Council, and the Ministry of Economy and Labor. Each participant presented the way in which he saw the challenges faced by technology companies in this period, and it was agreed that further discussions would take place in small groups.

Published by Globes, Israel business news - en.globes.co.il - on April 7, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

President Donald Trump / Photo: Tom Brenner, Reuters, Reuters
President Donald Trump / Photo: Tom Brenner, Reuters, Reuters
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