Treasury promoting uniform 15% companies tax rate

Bezalel Smotrich credit: Yediot Ahronot Alex Kolomoysky
Bezalel Smotrich credit: Yediot Ahronot Alex Kolomoysky

Israel seemed to have dropped the idea of joining the OECD's global tax rate plan, but Finance Minister Bezalel Smotrich has confirmed his commitment to it.

For generations, Switzerland was a magnet for money from all over the world because its companies tax rate was just 12%. Last week, that came to an end. Switzerland, through a referendum, decided to adopt the global minimum companies tax rate of 15%, which will come into effect at the beginning of 2024.

What is happening in Israel? The discussion on adopting the global rate was at its height in June 2021, when then minister of finance Avigdor Liberman announced that Israel would sign up to the OECD’s plan for taxation of the digital economy. Shortly afterwards, the Bennett-Lapid government confirmed adoption of the international principles, including a 15% minimum rate of companies tax.

Since the change of government, the matter seemed to have been dropped completely, but now, "Globes" has been informed on Minister of Finance Bezalel Smotrich’s behalf that he has confirmed Israel’s commitment to adoption of the plan. "The minister is coordinated with his professional staff and is conducting discussions with the chief economist’s department and with the Israel Tax Authority on the matter. The minister also ratified Israel’s commitment in principle to the plan at his meeting with the secretary general of the OECD during the meeting of the organization’s Ministerial Council."

The OECD’s plan has two main components. The first enables countries outside the US to benefit for the first time from the profits of the big technology companies such as Google, Meta, and Apple. Companies will be taxed according to the location of their customers, and not according to where they are registered.

The second component, which is more complicated to legislate, is a minimum companies tax rate of 15% on companies with annual revenue of more than $750 million, by enabling countries to collect the difference up to that rate if a "wayward" country decides to offer a low companies tax. Through this mechanism, a pressure lever is created on that country, no to lose potential revenue to other countries, and in effect a global companies tax rate is created.

Agreement on a uniform companies tax rate represents a huge change for small economies. For years, some of them have served virtually as tax shelters, offering low to negligible tax rates.

For Israel too, this will be a significant change, as various multinational companies operating here enjoy very low tax rates, which can be as low as 6%, under the Law for the Encouragement of Capital Investment. If the OECD plan is adopted, companies such as Intel, which pay rates of tax under 10% in return for constructing plants in the periphery, will be required to pay the minimum rate of 15%.

Adv. Binyamin Tovi, a senior partner at the law firm of Shekel & Co. and manager of its International Tax Department, says, "There will be no negative effect on Israel from adopting the 15% minimum global tax rate plan, assuming that the plan is adopted by other countries as well. Even today, tax rates of 6% are exceptional. Most technology companies are located in the center of the country, where the best tax rate is 12%. A 3% rise in the rate of taxation with have little effect."

It should be pointed out that Israel does not have to change its tax laws in order to agree to be included in the global 15% tax plan. If it continues to award tax benefits and low rates of tax under the Law for the Encouragement of Capital Investment, the multi-national companies will in any event be required to make up the tax in their countries of residence, which will mean that other countries will benefit from the revenue instead.

Published by Globes, Israel business news - - on June 29, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Bezalel Smotrich credit: Yediot Ahronot Alex Kolomoysky
Bezalel Smotrich credit: Yediot Ahronot Alex Kolomoysky
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