Teva to Pay Israel $565 Million in ‘Trapped Profits’ Tax Accord; joins fertilizer maker Israel Chemicals in releasing profits accumulated since 2005 under a law designed to encourage investments

Teva to Pay Israel $565 Million in ‘Trapped Profits’ Tax Accord

Teva Pharmaceutical Industries Ltd. (TEVA) agreed to pay Israel 2 billion shekels ($565 million) in taxes, joining fertilizer maker Israel Chemicals Ltd. in releasing profits accumulated since 2005 under a law designed to encourage investments. Teva, Israel’s largest publicly-traded company, said the amount would be paid within the framework of the amendment 69 to the Law for the Encouragement of Capital Investments, according to a Business Wire statement. That includes another 336 million shekels paid in May, it said. In addition, Teva will pay about 840 million shekels for taxes during the years 2005 to 2011, it said.“We have reached a beneficial agreement for Teva and the Israel Tax Authority concerning the release of trapped profits and the closure of pending tax assessments,” Eyal Desheh, Teva’s acting chief executive officer, said in the statement. “The agreement generates sources for dividends to our shareholders for years to come and settles tax assessments which had been in dispute for a long time.”

Teva’s decision settles a controversial practice in Israel that allowed multinational companies to refrain from paying taxes as long as they didn’t release the profits under a law enacted by the state to encourage investments. Under an amendment approved by parliament last year, companies such as Teva and Check Point Software Technologies Ltd. could release those so-called trapped profits by paying a reduced tax rate.

The amendment was designed at the time under Finance Minister Yuval Steinitz as Israel struggled with a widening budget deficit that was more than double the government target in 2012. The government then projected tax revenues of some 3 billion shekels as companies would seek to take advantage of the opportunity to release profits.

Israel Chemicals

Israel Chemicals said yesterday it would release all trapped profits of units DSW and Rotem Amfert Negev. ICL will pay tax in the amount of 380 million shekels, it said yesterday.

“I’m happy that Teva did the right thing,” Finance Minister Yair Lapid said in an e-mailed statement today. “Teva is an important element in Israeli industry. It is important to remember Teva’s contribution to the Israeli economy and to employment over the years. The public should be aware that a strong Teva is in the interest of the State of Israel.”

Teva, which employs more than 7,000 people in Israel, has been criticized after announcing plans to cut as much as 10 percent of its workforce. The world’s largest maker of generic drugs was assailed for seeking to dismiss local workers even as it has taken advantage of tax benefits. Today was the last day for companies to pay taxes and release accumulated profits.

Teva said it expects to incur a charge of approximately $235 million in the fourth quarter of 2013.

To contact the reporter on this story: David Wainer in Tel Aviv at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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