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PLANNING OPPORTUNITIES
Possible scenarios for consolidation of substance and profits in Israel
Convert Israeli R&D cost plus arrangement into IP ownership model
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Potential advantages:
- Immediately apply 6% CIT on income from IP developed in Israel
- No need to relocate employees (due to existing significant people functions)
- Achieve maximum benefits under the Nexus formula (Action 5)
- Mitigate future scrutiny on the cost plus arrangement due to existence of DEMPE functions in Israel
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Keep IP in Israel upon acquisition of Israeli targets
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Potential advantages:
- Israeli tax rate can immediately decrease upon acquisition from 12% to 6% if the buyer’s global turnover is over $2.5B
- Avoid additional tax and controversy upon post-acquisition IP migration
- Increased flexibility in the deal holding and financing structure
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Sell IP into Israel in exchange for a capital note
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Potential advantages:
- 8 years tax amortization
- Benefits can uniquely apply by transfer of trade and to acquired IP previously developed in Israel on a cost plus basis (in line with Action 5 exception for non-EU countries)
- Tax free repatriation up to the principal amount of the note (no thin cap rules in Israel)
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