Israel plans to enact global minimum tax of 15% on multinational corporates

Israel will be joining 140 countries in collecting a minimum tax from global tech giants such as Intel, Google, and Microsoft, which have been benefiting from reduced rates

Sharon Wrobel is a tech reporter for The Times of Israel.

A bird's eye view of MATAM, Haifa's premier technology park where Amazon, Google, Yahoo, Intel, Microsoft and other tech giants have locations. (CC BY 3.0)
A bird's eye view of MATAM, Haifa's premier technology park where Amazon, Google, Yahoo, Intel, Microsoft and other tech giants have locations. (CC BY 3.0)

Israel is planning to advance legislation to collect a global minimum tax rate from multinational corporations, that is being adopted by 140 countries around the world to stamp out loopholes or tax outflow to low-tax jurisdictions.

The Finance Ministry announced on Sunday that Israel decided to put in place a global minimum income tax rate of 15 percent, a so-called Qualified Domestic Minimum Top-Up Tax (QDMTT), starting in 2026 on the profits generated by multinational companies with annual global revenue in excess of €750 million ($812 million). It is intended to prevent global large tech groups resident in Israel from paying taxes abroad for income generated in Israel.

With this announcement, Israel would be joining about 140 countries that already agreed in 2021 to changes of how large multinational corporates are taxed in order to deter them from avoiding taxes by parking their profits in countries with lower rates. The initiative, which was also created to deal with the challenges of digitalization and the e-commerce economy, is tailored to make sure large tech groups and multinationals pay a global minimum tax rate in the place they do business.

“Israel’s decision for the implementation of the international standard that was formed regarding the taxation of multinational corporations, will help preserve the attractiveness of the Israeli tax regime in the new global taxation reality, and will prevent an outflow of taxes from Israel generated from local operations,” said Finance Minister Bezalel Smotrich. “Compliance with advanced international standards is a necessary condition for creating a free and global market economy that leads to growth and improving our quality of life.”

Smotrich added that the decision was made on the recommendation of Shmuel Abramzon, the ministry’s chief economist who is in charge of state revenues; Yogev Gradus, head of the budget division; and Shai Aharonovitz, director of the Israel Tax Authority. The legislation still needs to be drafted and then passed in the Knesset.

The global tax reform program that Israel is planning to join is part of the Base Erosion and Profit Shifting (BEPS) initiative brokered by the Paris-based Organization for Cooperation and Economic Development (OECD). Many of the countries that have joined the initiative have already started to adopt and implement the minimum corporate tax from 2024.

Leon Harris, certified public accountant and tax specialist at Harris Consulting & Tax Ltd. (Courtesy)

“The OECD was brought in to put a halt to the shenanigans of large tech giants such as Apple who were parking a lot of their profits on service in offshore locations like the Cayman Islands paying minimal taxes,” Leon Harris, certified public accountant and tax specialist at Harris Consulting & Tax Ltd. told The Times of Israel.  “Israel is planning to do this only from 2026, when the rest of the world, those 140 other countries, are starting off in 2024.”

“If the proposed new law becomes effective in Israel only in 2026, Israel will forfeit tax it could have collected in 2024 and 2025 at a time when the country is at war and needs all the tax revenues it can get,” said Harris.

Israel has a general corporate tax rate of 23%, while large tech companies with operations in the country are benefiting from reduced rates under the the so-called Encouragement of Capital Investments Law. Once the global minimum tax is legislated, multinational companies resident in Israel that are taxed at a rate below 15% will have to “top up,” Harris said.

“Israel has now woken up, but it is only going to collect the 15% on Israeli profits by multinationals,” said Harris. “Israel still does not want the 15% on the offshore profits of Israeli big companies and we have a few with over €750 million worth of sales worldwide.”

The Jewish nation is home to most of the biggest multinational companies, including Intel, Microsoft, Google, Apple and Amazon, who have been paying taxes at rates as low as 5% in exchange for investing in local infrastructure and creating thousands of local jobs.

In the most recent deal with the Israeli government, Intel will pay a 7.5% tax rate, up from the 5% the US chipmaker pays the state today, as it has plans to build a chip manufacturing plant in Kiryat Gat at an investment of $25 billion.

“In order to keep attracting large scale investors like Intel, Israel will probably need to return some of the tax money through the back door – officially known as ‘Qualified Refundable Tax Credits,” said Harris. “That’s as countries, like the UK and the US, that Israel is up against and that are joining the global minimum tax, have very generous tax credits for R&D development and energy tax credits that are very successful to bring in foreign industrialists and investors.”

The global tax reform is “designed to stop Israel losing tax revenues and having them go elsewhere,” but “I think these refundable tax credits will mean we are going around in full circle and ending up in the same place,” he added.

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