Intel to pay taxes from Mobileye deal in US dollars

Intel Corp. will be allowed to pay taxes derived from its $15.3 billion acquisition of Mobileye in US dollars if the sale is finalized, the Bank of Israel said on Tuesday, in an effort to prevent an impact on the exchange rate and an “over-appreciation” of the shekel.

The matter was decided jointly by Israel’s Tax Authority, the Department of the Accountant General and the Bank of Israel.

Were the taxes to be paid in shekels, Intel would have to sell dollars to buy shekels, which could even further strengthen the shekel.

According to estimates, Israel is scheduled to get some $1 billion -$1.5 billion in tax revenues from Intel’s acquisition of Mobileye, a Jerusalem-based developer of advanced vision and driver assistance systems.

Expectations of the inflow of tax revenue money were already affecting the shekel exchange rate, which fell below NIS 3.6 per dollar on Monday, spurring the Bank of Israel to intervene by buying dollars, according to TheMarker.

The strong shekel is hampering Israel’s exports.

Separately, the BMW Group, Intel and Mobileye said Tuesday they would add Delphi Automotive as a development partner and system integrator for their joint autonomous driving platform.

“The four partners intend to jointly deploy a cooperation model to deliver and scale the developed solutions to the broader OEM automotive industry and potentially other industries,” the companies said in a statement.

BMW, Intel, Mobileye announce cooperation for driverless car, July 2016 (Courtesy)

Delphi has already provided a prototype computer platform to the BMW Group and is working together with Intel and Mobileye in the areas of perception, sensor fusion, and high performance automated driving computing, the statement said.

In July 2016 BMW Group, Intel, and Mobileye said they would join forces to make self-driving vehicles a reality and would collaborate to bring solutions for “highly and fully automated driving” into series production by 2021. The three original partners have since developed a system that can be used by other automotive developers and carmakers for their own designs and brands, the statement said.

The Intel-Mobileye deal

The US giant said in March it had entered into an agreement to buy Mobileye in an effort to position itself as a leading technology player in the fast-growing self-driving car market.

Following the agreement, an Intel subsidiary put out a tender offer on April 5 for all of the outstanding ordinary shares of Mobileye at a price of $63.54 per share, deducting applicable withholding taxes and without interest, payable in cash to the shareholders. The tender offer is scheduled to expire on June 21.

The deal is subject to regulatory approvals in various jurisdictions, the company said in the April 5 statement.

One of the approvals Mobileye is waiting for, said Elad Brauner, a tax partner at GKH Law Offices in Tel Aviv who is not involved in the deal, is a nod from the Israeli Tax Authority to classify the deal in Israel as a share sale, even if it is classified as an asset sale in The Netherlands where the company was incorporated.

To approve the Intel deal, Mobileye needs a 95% approval of shareholders. “This is not easy to get,” said Brauner. To make the deal happen, having the transaction structured as an asset deal in Holland, followed by liquidation of the parent company, will allow the percentage of shareholders who will have to vote for the deal to be reduced, making it easier to pass, he explained.

But for tax purposes in Israel, Mobileye prefers the deal to be classified as a share sale. In a share sale, foreign investors are exempt from taxes whereas if the transaction is classified as an asset deal in Israel, the transaction would be taxable.

“Although there is no guarantee that a favorable ruling will be obtained and although there are no precedents to such a unique situation, we estimate that a favorable ruling will be given,” said Brauner. “Economically this transaction should be treated as a share deal and there are good arguments to support such treatment also for Israeli tax purposes.”

A spokesman for the Tax Authority declined to comment, as did Mobileye, which said, “When we have something to update, we will update the market in the normal way.”

Mobileye develops sensors and artificial intelligence that allow a vehicle’s onboard computer to know where it is in relation to other vehicles, pedestrians and the surroundings, the key technologies needed for cars to eventually safely drive themselves.

The deal, the largest-ever purchase of an Israeli high-tech company, was hailed across Israel as a sign of the country’s technological prowess.