The Rothschild Caesarea Foundation is threatening to fight for Knesset legislation to ensure its tax exemption, following the deadlock in the attempts to reach an agreement between it and the state. Sources inform "Globes" that a meeting recently took place between Foundation vice chairman Shlomo Yanai and Minister of Finance director general Yael Andorn in another attempt to find a solution to the dispute between the parties. At least two compromise proposals raised over the past year by the parties were rejected.
The state, which owns half of the Foundation, is demanding that it pay the legally stipulated tax on the NIS 1 billion it has accumulated, and expects the fund to donate hundreds of millions of shekels to the development of higher education - the purpose for which the Foundation was started. Foundation management holds that the state is not fulfilling former Minister of Finance Shimon Peres' promise to pass legislation ensuring the tax exemption granted it in the 1960s.
The state and the Rotshchild family created the Foundation in a 1962 agreement, which stipulated that the Foundation's proceeds would be used to develop higher education in Israel. The Foundation received leasing rights and ownership for 30,000 dunam (7,500 acres) near Caesarea, and ownership of the Caesarea Development Corporation. Another subsidiary was later founded, called the Caesarea Assets Corporation. Then-Minister of Finance Levi Eshkol granted the Foundation a tax exemption, which was canceled at the beginning of the 21st century. In 1989, the agreement between the state and the Rothschild family was extended until 2022, this time by Peres.
According to the Foundation, ministers of finance promised on a number of occasions that the state would pass legislation establishing the tax exemption. Despite being a government company, the Foundation refuses to publish its financial statements. In response to a "Globes" inquiry, the Ministry of Finance stated, "The consent of both parties is required for publication of the financial statements.
"The Ministry of Finance does not oppose publishing the financial statements, but the Caesarea Foundation refuses to do so. We are therefore unfortunately prevented from doing so."
Donated small amounts
Over the years, politicians have ignored the Foundation's accumulation of large amounts of money from business activity - money that the Foundation kept and did not distribute to institutions of higher learning. Ministry of Finance Accountant General Yaron Zelekha and Government Companies Authority director general Eyal Gabay sent a letter in 2006 to then-Minister of Finance Abraham Hirschson and three other ministers demanding that a way be found to force the Foundation to distribute the funds, and perhaps to liquidate it.
The real estate boom, which has made the Caesarea a focus for demand from many wealthy people, including the family of Prime Minister Benjamin Netanyahu, caused the value of the Foundation's properties to soar. At the same time, through its subsidiary, the Foundation has been charging enterprises in the Caesarea industrial zone a kind of property tax amounting to NIS 30 million a year. According to a report by the Government Companies Authority for 2013, the value of the Fund's properties reached NIS 910.3 million at the end of 2012, compared with NIS 862.2 million at the end of 2011.
On the subject of donations, State Comptroller Micha Lindenstrauss's 2011 report found that up until 1989, the Caesarea Foundation had donated only small amounts to the development of higher education, while exploiting the fact that the state had given it full discretion in determining the amount of its donations. In the 1989 agreement, the state demanded a floor amount for donations, but at the same time made a larger concession to the Foundation by agreeing to limit the potential donations, and ruled that the Foundations would donate two thirds of the profits on its pension investments, while most of the Foundation's income came from the sale of real estate. Lindenstrauss found that the Foundation had not complied with the new rules; it distributed NIS 167 million in donations in 2005-2010, while it should have donated NIS 185 million.
Lindenstrauss went on to write that even this full amount was "only a small proportion of what it (the Foundation) could have donated," adding, "This is a matter of principle with public aspects that should not go unaddressed. The council of the Foundation and its shareholders, the state and Beit Rothschild, should conduct a serious and practical dialogue to examine the question of whether, given the length of time that has passed, the change in circumstances, and the growth in the Foundation's resources, the proportion of its donation should be changed." According to the Government Companies Authority report, the Foundation's donations totaled NIS 23.5 million in 2012, compared with NIS 18.9 million in 2011. The politicians again ignored Lindenstrauss's recommendations, and did nothing. In 2010, the Israel Tax Authority assessed the Foundation for NIS 145 million in taxes on its revenue in 2004-2008.
The Tax Authority asserted that the Foundation owed tax under the law for two main activities: corporate tax on the sale of land used for the construction of private houses and industrial buildings, and tax on capital gains derived by the Foundation from the management of its financial assets. It appears, however, that Jerusalem District Court Judge David Mintz, who was appointed to hear the legal dispute between the parties, is not showing much enthusiasm for bringing the dispute to a close. Legal proceedings have in effect been suspended for the past two years in order to allow the state and the Rothschild family to reach a compromise. Sources inform "Globes" that during the period when proceedings were suspended, at least two compromise proposals were brought up and rejected: one by the Foundation, which offered to donate NIS 300 million to establish a university in northern Israel and to transfer to the state 1,000 dunam (250 acres) of land in the Or Akiva area that could be suitable for residential construction. The state decided to oppose the offer, because the price demanded by the Foundation was a general tax exemption. On the other hand, the Foundation opposed a compromise submitted by deputy Attorney General Adv. Avi Licht.
Licht's proposal, which the Tax Authority accepted, would have split the Foundation's activity into two sections, one of which would handle its philanthropic activity, while the other section would handle its business activity. Licht proposed that the philanthropic section benefit from an exemption on financing profits, as is usually the case with non-profit organizations, while the business section would pay a reduced historic rate of betterment tax on the land it sold.
Published by Globes [online], Israel business news - www.globes-online.com - on February 4, 2015
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