Randolph and Jennie Churchill clearly understood their son better than my parents understood me. Winston once related that, as a young child, his mum and dad would not allow him to see the Boneless Wonder at P.T. Barnum’s famous circus, because the ‘spectacle would be too revolting and demoralizing for my youthful eyes’.

An ‘exclusive’  in Israel’s principal financial daily this week reminded me of my greatest circus fear as a child. My father and mother didn’t protect me, and it has been the subject of many-a-nightmare over the course of my life. Read on.

The newspaper article reported that one of Israel’s leading multinational companies is negotiating the transfer of its intellectual property to Israel from abroad in return for billions of shekels in tax benefits. It is tempting to think that the move is purely voluntary – after all, the law offers such companies the potential of highly advantageous tax rates. But, then, there have been good deals in the past that didn’t seem to attract management. The fact is, that Israeli companies (and not just Israeli companies) had their IP sunning itself on tax-free desert islands and tax-vacation friendly jurisdictions for decades, until the G20 and OECD finally decided to send the international tax system back to work. Good tax vacation resorts have been becoming harder to come by, and a recent statement by a senior Israeli tax official concerning their intentions with regards to R&D Center transfer pricing, has reminded everyone that the beach party is over. Time to get serious, and that appears to be what this company is doing.

So, what has that got to do with my fear of the circus?

As a child, I wasn’t remotely scared of tamed lions, dancing elephants, or hapless clowns. I was TERRIFIED of trapeze artists. In those days, at the Bertram Mills Circus in London, they would cavort around beneath the roof of the Big Top without the benefit of a safety net. It was a literally death-defying act, and I remember sitting next to my unperturbed parents with my eyes closed, and my hands cupped over my face for extra protection.

When small-to-medium sized Israeli companies started to go international back in the nineties, they quickly learnt to swing about under the canvas of the Big Top of the world, using daring tax planning to avoid  falling into the arms of the  Israeli tax ringmaster below. They had to be nimble, swooping from platform to platform, often hanging on precariously by their fingertips. Then, one day around 2013, Health and Safety got busy in the form of increasingly restrictive OECD transfer pricing regulations, resulting in the ringmaster destabilizing the platforms, while providing a safety net for the artists to fall into. On the one hand, it was much harder to keep flying, and on the other hand there were positive incentives to jump. Eventually, there were only two trapeze artists left in the sky, standing on platforms, the rope ladders to which had long fallen away, unable to connect across the vastness of space.  

Which brings us to today.

The two remaining trapeze artists, representing the shell of the foreign parent, realize that it is time to give up the ghost. Before they can call below, the ringmaster folds up the safety net and starts walking out of the ring.

 ‘Oy, waidaminnit, what about us?!’ shout the two stranded artists. ‘There is nothing left for us to do up here. We want to come down.’ The ringmaster keeps walking, without looking back or up.

That is what is now going on with Israeli companies. Many of those once nimble international corporate holding structures have become redundant as profits are concentrated in Israel. The obvious thing to do is to collapse them.  Not so fast. Some cannot collapse because of the capital gains tax effect in foreign jurisdictions – there isn’t much one can do in Israel against that. But others are stuck because of the Israeli tax effects – and that is not logical. If Israel’s position is to bring activities and profits home, the system should permit the collapsing of unnecessary structures tax free. By forcing them to stay in place, apart from corporate inefficiency, there are additional unnecessary tax costs resulting, for example, from foreign taxation on dividends received  from an Israeli subsidiary followed by dividend withholding tax on payments back to Israeli shareholders. Tax-free restructuring provisions – such as corporate spin-offs and the dividending up of companies – are only available by luck, rather than design, if the reorganizing group happens to tick all the relevant boxes. The alternative of tax migrating the foreign companies to Israel through transfer of management and control  is similar to holding up a rusted car’s chassis with sellotape – it does the job as long as it is treated carefully; go over one bump too many and the  whole thing will collapse.

Churchill once said: ‘Give us the tools, and we will finish the job’. Amen.


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