Global Tax Alert | 29 October 2013

Israel requires action by 11 November 2013 to release trapped profits

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11 November 2013 is the last day to apply the temporary partial relief from Israeli corporate income tax by companies that wish to “release” their trapped exempt profits (accrued until 31 December 2011).1

Companies that wish to apply for the temporary relief should submit their request through filing Form 969, and pay the reduced tax to the Israeli Tax Authorities.

In accordance with the temporary relief (and provided certain conditions are met), companies may voluntarily choose to pay reduced corporate income tax on their exempt retained earnings, even if no actual distribution is made.

The temporary order specifically provides the opportunity to pay reduced corporate income tax on exempt profits which were previously used by the company for investment in its subsidiaries. In light of a recent change in the Israeli Tax Authorities’ policy with respect to the Israeli claw back provisions, it is anticipated that companies which do not exploit this opportunity may face tax assessments which challenge their tax positions regarding investments of trapped exempt profits in subsidiaries.2 Accordingly, multinationals should immediately assess the potential impact of their possible course of actions with respect to cash tax considerations and implications for financial statements.

Endnotes

1. See EY International Tax Alert dated 13 November 2012, Israeli Parliament approves temporary, partial tax relief for repatriation of exempt income.

2. See EY International Tax Alert dated 9 May 2013, Recent tax developments in Israel set two deadlines for multinational corps.

For additional information with respect to this Alert, please contact the following:

Kost Forer Gabbay & Kasierer, Tel Aviv
  • Sharon Shulman
    +972 3 5687485
    sharon.shulman@il.ey.com
Ernst & Young LLP, Israeli Tax Desk, New York
  • Ram Gargir
    +1 212 773 1984
    ram.gargir@ey.com

EYG no. CM3917