Israel to study impact of US tax reform on local investments
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Israel to study impact of US tax reform on local investments

Prime minister asked a team of advisers for recommendations within 30 days, Calcalist reports

Prime Minister Benjamin Netanyahu opens the weekly cabinet meeting at his Jerusalem office on December 31, 2017 (AFP PHOTO / POOL / GALI TIBBON)
Prime Minister Benjamin Netanyahu opens the weekly cabinet meeting at his Jerusalem office on December 31, 2017 (AFP PHOTO / POOL / GALI TIBBON)

Prime Minister Benjamin Netanyahu has reportedly asked senior officials in his office and the Finance Ministry to study the implications of US President Donald Trump’s recently passed tax reform on Israeli and US firms operating in Israel.

He instructed the head of Israel’s National Economic Council, Avi Simhon, to set up a team and come up with recommendations within 30 days, the Hebrew financial website Calcalist reported.

An Israeli official who requested to remain unnamed confirmed the report.

Netanyahu asked the team to present him with a number of scenarios in light of concerns that the US tax reform will impact the amount of investment from US firms in Israel or alternatively induce Israeli firms to prefer to set up shop in the US rather than in Israel, to enjoy lower tax rates, the Hebrew financial website said.

Some government officials were doubtful anything could be done about the matter within the 2019 budget, which is set to be passed in coming months, although others said that some corporate tax relief steps could be implemented if deemed necessary, Calcalist said.

Prof. Avi Simhon, head of the National Economic Council, addressing the IATI MNC Forum 2016 (Nir Shmul)

Trump’s Tax Cuts and Jobs Act, which passed last month, aims to overhaul the US tax code by cutting the number of personal income brackets and limiting or doing away with a selection of popular tax breaks. It caps the mortgage-interest deduction on new home sales and allows for capital expenditures to be deducted in year one.

The bill, which was touted by Trump as a “big and beautiful Christmas present in the form of a tremendous tax cut, it will be the biggest cut in the history of our country,” slashes the corporate tax rate to 21% percent from the previous 35%. The rate will be effective this year.

The tax reform will make it more attractive for Israeli firms to set up businesses or acquire companies in the US market, international tax attorneys have said. The lower US tax rate could also spur an outflow of Israeli startups to US shores, impacting Israeli tax revenues, tax attorneys warned earlier this year.

Until now the US tax rate was higher than in Israel — an average US rate of 35% compared to the Israeli rate of up to 25%. But as the US rate drops to 21%, the incentives to setting up a business in the US have grown.

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