Controlling Interest Cos to Be Taxed on Capital Gains on Shares in Controlled Companies
By Itamar Levin
The Knesset last night approved on second and third reading the expansion of taxation on corporate profits from securities. Following the amendment, capital gains tax will be imposed commencing January 1, on all companies in Israel. The economic ministries in Jerusalem regard this move as the first harbinger of the stock exchange tax planned as part of the income tax reform.
Prior to the amendment, companies were charged capital gains tax only in respect of their profits on the shares of companies in which they were not controlling shareholders. Following the amendment, controlling shareholder companies too will be subject to capital gains tax in respect of their shares in the controlled companies.
Tax will be collected, on disposal of the securities, on the real profit, consisting of the difference between purchase price and the selling price. At the same time, the company will be able to offset capital losses on shares against capital gains from other shares.
In response to a question by "Globes", Income Tax Commissioner Doron Levy today stated that the tax will also apply to foreign companies that control Israeli companies, unless they obtain an exemption from the Minister of Finance.
According to Levy, tax will be collected in instances in which foreign ownership is merely fictitious, such as where an Israeli company is controlled by a company registered in a tax shelter, whereas actual control is known to be held by an Israeli concern. Genuine foreign investors, on the other hand, such as international companies acquiring Israeli companies, will be given an exemption.
Published by Israel's Business Arena October 27, 1998
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