District Court ruling: may force Teva to pay additional taxes of hundreds of millions NIL

The ruling of the Lod District Court Judge, Shmuel Bornstein, may force Teva to pay additional taxes in the hundreds of millions of shekels.
Judge Bornstein rejected Teva's appeal (-6.72% 2915) against an order filed by the Jerusalem Assessing Officer regarding the tax years 2008–2011. At the heart of the dispute between Teva and the tax authority was the question of whether Teva's use of tax-exempt profits for the acquisition of Ivax, Barr, Ratiopharm and Cephalon, in the cumulative amount of $ 27 billion (of which $ 18 billion in cash), expires Teva's tax exemption. Under the Capital Investment Encouragement Act. Teva acquired the companies in the years 2006–2011.
The Tax Authority was of the opinion that the use of funds for the purpose of acquiring a business activity abroad is equivalent to a dividend distribution by the company and is therefore taxable, because the purpose of the Capital Investment Encouragement Law is to direct economic activity to Israel and develop local enterprises. It is taxed on the use of funds, because the provisions of the relevant section of the Capital Investment Encouragement Law apply only in the case of the distribution of profits to shareholders, and not when the funds are used by the company to acquire companies - which also indirectly increases its activity in Israel.
Teva claimed, among other things, that the amount used by it from its sources (as opposed to the total amount it paid for the companies) was lower than the cumulative amount of tax-exempt profits that could be utilized for various uses without paying comprehensive tax to acquire subsidiaries. Teva also claimed that it was entitled to the claim of reliance, because its position is consistent with the manner in which the Tax Authority has acted for many years.
The ruling states, among other things, that "investing money in a subsidiary that does not own the beneficiary enterprise does not advance the purpose of the law in the way the legislature sought to promote. Easy and material when the money is invested in a foreign subsidiary." Beneficiaries, for the purpose of investing in foreign companies, and this is inconsistent with the purpose of the law, which is to encourage the development of the local - Israeli economy.
"Investing in a foreign-affiliated company therefore leads, in turn, to a diversion of resources to foreign markets, even if it will ultimately benefit the Israeli economy, as argued in this case. Or the beneficiary enterprise, and it is clear that an Israeli company would not have received a grant for the establishment or development of an enterprise located in another country, even if indirectly this would lead to the development and promotion of the activity carried out in Israel due to the affiliation between them. "
Judge Shmuel Bornstein accepted the position of the Tax Authority, stating in the ruling: "The purpose of the Capital Investment Encouragement Law is to direct economic activity to Israel and develop local enterprises, and therefore the transfer of tax-exempt profits from the taxpayer They no longer serve the beneficiary enterprise. "
The ruling states, among other things, that "investing money in a subsidiary that does not own the beneficiary enterprise does not advance the purpose of the law in the way the legislature sought to promote. Easy and material when the money is invested in a foreign subsidiary." Beneficiaries, for the purpose of investing in foreign companies, and this is inconsistent with the purpose of the law, which is to encourage the development of the local - Israeli economy.
Bornstein rejected the claim of silence and reliance, as it is inconsistent with the position of the Tax Authority as presented in 1992 with the addition of the section to the Capital Investment Encouragement Act, which deals with the use of exempt profits for the purpose of dividend distribution.
Bornstein criticized Teva's attempt to claim that it had invested in Israel in the relevant years in excess of its exempt profits, saying it was "a misrepresentation, and similar to Baron Munchausen's attempt to pull himself out of the swamp with his own hair." This is because the data presented by Teva - which included, among other things, investments in research and development and inventory and depreciation - is a recognized expense for tax purposes that has been deducted from its taxable income. It is estimated that Teva will appeal the ruling.