U.S. President Donald Trump’s proposal to cut the corporate tax rate to 15 percent, if carried out, portends serious reverberations in the Israeli economy, experts were saying on Thursday.
“Cutting the business tax will have a dramatic impact on the strategy of more than 90 percent of Israeli companies that have U.S. operations,” Beneli Tax Boutique CEO Ilan Ben-Eli told Globes.
“Israeli companies operate with a structure of an Israeli company and a U.S. subsidiary with the subsidiary performing very minimal functions of distributing products and services. At the moment, corporate tax in the U.S., between federal and state taxes, is effectively 40 percent; and that’s before taking into account profits that can add another 7.5 percent effective tax, as there is a 12.5 percent dividend tax in the U.S.” In total, 47.5 percent.
That, Ben-Eli explained, compares to an effective rate of 24 percent in Israel, after incentives are factored in. So companies prefer to channel their profits to Israel, where the climate is more favorable. A major tax cut in the U.S. would force Israeli companies to redirect their tax strategies.
S. Horowitz & Co. managing partner and tax department head Leor Nouman pointed out that such a cut, which looks likely to pass Congress in some form, would impact Israel indirectly, through big players like Apple and Google.
The current tax rates in the U.S. cause the international corporations to move revenues and register IP in other countries, including Luxembourg, Ireland and Israel, where taxes are lower.
“But if Trump’s plan is passed, the situation will change in favor of the U.S. Israel will lose no small amount of income. Many countries are going to have to say goodbye to income from companies like Apple and Google.”