Following significant global changes in tax and incentives, the multinational companies are examining the manner of their global operations.
Even before that, according to the Innovation Authority, in recent years the pace of opening new development centers in Israel by multinational companies has decreased significantly.
Development centers were closed due to the global economic crisis, and acquired Israeli companies were closed and did not serve as a basis for establishing new development centers.
The war, and before it the internal instability, increased the sensitivity of the companies regarding the activity in Israel.
Without a government response, these things could harm the activities of multinational companies in Israel.
Analyzes done (IATI) show that the activities of the multinational companies make a decisive contribution to the technological ecosystem in Israel: for employment, investments in R&D, importing knowledge, promoting scientific education, exports, and the state's revenues. Harming the activities of the multinational companies in Israel has technological, economic and social consequences.
Pillar2
– Global corporate tax
Starting in 2024, as part of the international tax reform of the OECD/G20, many countries are expected to gradually apply a global corporate tax rate of at least 15%, to large multinational companies with a revenue turnover of at least 750 million euros.
The global tax is built on externalities.
If a country does not impose an effective corporate tax of at least 15% on these companies, another country where the same group operates will be able to tax the tax gap instead.
Because of this, many countries are promoting legislation that would give them a "right of first refusal" on completing a tax gap, so as not to lose the right of taxation to other countries.
Huge incentives as part of the Great Powers War
The American microchip law, from August 2022, is intended to jumpstart innovation and strengthen national security, in particular vis-a-vis China.
The law allocates $52.7 billion over five years to the chip industry, including $39 billion for the establishment of plants in the US and $11 billion for R&D.
Tax benefits of approximately 24 billion dollars were also established for the production of chips, and a budget of more than 200 billion dollars for R&D and the commercialization of advanced technologies, such as quantum computing, artificial intelligence, and nanotechnology. Similar laws were published in most of the countries that operate in the field of chips, including the European Union (investment of 43 billion euros), Japan and South Korea.
Chip rules are changing the global layout of chip companies.
International chip manufacturers stopped the establishment and expansion of factories in China (Intel), and announced the establishment and expansion of chip factories in the US and the European Union (Samsung, TSMC). Even Taiwan enacted a chip law to prevent the transfer of additional factories from Taiwan.
Meanings - coalescence of challenges
The minimum global tax is expected to harm
the effectiveness of Israel's tax benefits
that result in a corporate tax lower than 15%, since the tax gap will be collected in another country.
This is a
lose-lose
situation
.
Israel will grant a tax benefit without this benefiting the companies or the people of Israel.
At the same time, the uncertainty created by the global tax increases the
weight of other (non-tax) considerations in determining the location of operations of multinational companies
, such as financial incentives, subsidies, quality and availability of manpower, infrastructure, regulation and stability.
The importance of financial incentives and government investment in R&D is also increasing due to the copycat incentives
offered by the various countries in the competition for technologies.
Israel is the last country among the players in the chips and advanced technologies market that has not yet formulated a national strategy to secure the industry
. According to the SNPI Institute, in the last two years not a single startup in the field of chips has emerged in Israel Considering the huge investments in the world, the risk of Israel's loss of competitiveness is already materializing and may get worse,
and this has implications for the current economy, the development of the technological sector for the future, and the aspects of Israel's national security
.
Israel - turning the challenge
into invitations
An up-to-date policy regarding the multinational companies must be formulated, as soon as possible and while creating certainty, in order to avoid transferring activity to other countries and attract activity to Israel, using the full range of economic tools, such as taxes, financial and other incentives, regulation and infrastructure.
In this rule: (a) Enact the reform mechanisms that will ensure that Israel does not lose taxation rights (IIR, QDMTT, UTPR).
(b)
adjust the tax incentives to the reform
that will not reduce the effective tax rate on companies, for example through the R&D Credit.
(c)
coordinate with the
relevant key countries, according to the companies operating in Israel, the date and manner of implementing the global tax.
(d)
strive for comprehensive and long-term agreements with multinational companies
(similar to what was done with Intel).
The companies will commit to activity and investment, and Israel to support and a preferential tax regime that complies with international rules.
(e)
Use the additional taxes that will be collected due to the reform
as a "wealth fund"
, and return the funds to industry, in incentives and investment in infrastructures and growth promoters, as part of a national technology strategy and in coordination with the companies.
(f)
Work to gain a foothold in the huge incentive programs of the USA, the European Union
and other countries, so that the establishment in Israel of factories, development centers or part of the value chain will entitle the companies to incentives within the framework of the laws. (g) Israel forgives aggressive tax positions, also retroactively, in interpretation and without legislation, which leads to prolonged tax disputes.
Certainty and simplicity must be increased in the taxation of multinational companies
. Publish positions that can be implemented and relied on core issues in coordination with the companies, and make it possible to enter into transfer pricing agreements with other tax authorities (APA) that will regulate the manner of taxation the global.
* The authors are researchers at the Institute for National Security Studies (INSS). Ariel Sovalman is the VP of Strategy at the chip company Valens. Ofer Garnot is a partner at Herzog.
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