Tax Authority Will Try to Close Billion Shekel Loophole

YERUSHALAYIM -

With a billion shekels in taxes at stake, the Israel Tax Authority said it would go to court to keep hundreds of companies from taking advantage of a loophole in a law meant to encourage capital investments for exports, Haaretz reported on Thursday.

The companies, which actually manufacture for the domestic Israeli market, seized on a clause in the 2005 tax law that would entitle them to a break. The law offers reduced corporate tax rates for companies that are determined to be exporters, defining exporters as companies selling to markets of over 12 million people.

That number was meant to exclude the local market. But since Israel and the Palestinian Authority passed the 12 million mark in 2011 and 2012, the door was open for those selling domestically as well.

The loophole was plugged by the Knesset in June, increasing the figure to 14 million effective for 2012, plus an automatic updating mechanism increasing the figure by 1.4% every year to keep pace with estimated population growth.

But the updating was not made retroactive to 2011, due to opposition from the Justice Ministry.

The Tax Authority says it will fight for its money from the year 2011, and will go to court if necessary.