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 dwainer3@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

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