Israel rethinks taxing foreign companies

The Israeli government took time out of its busy schedule of dumping white phosphorous on Palistinian schools, to look at how it funds rich western companies to set up in the Promised Land.

For years Israel has been giving money to Intel to prop up its chip making business in the region, but there are signs that the relationship is fading.

According to the Haretz newspaper, Treasury officials are now even thinking about taxing multinational companies that have accrued profits over the years in Israel and now want to take them overseas.

The Israelis have worked out that there are huge profits to be clawed back from companies who have set up shop in Israel.

State revenues are coming up short of forecasts for the year and the government needs to make a shekel or two to cover the gap.

Government thinking is tending toward hitting the multi-nationals for all the taxes owed but granting a tax break to about a third of the taxes due.

The argument is that the government must offer breaks to encourage them to pay out taxable dividends.

Intel accepted state aid under the Encouragement of Investments Law, which has entitled companies to billions of shekels in state support over the years.

The law was recently amended to allow them to repatriate profits, but companies have not been able to act on the change in  the tax rate.

There are a large number of tech companies in Israel who are sitting on cash mountains which are doing no one any good.

Check Point Software Technologies, Intel, Motorola and Amdocs are some of them.

Intel is estimated to pay an effective rate of about 12 per cent.