JERUSALEM Teva Pharmaceutical Industries (TEVA.TA) will pay 2 billion shekels ($565 million) to Israel's government as part of a program to release so-called trapped profit in exchange for a steep discount on its tax bill, the company said on Monday.
Trapped profit is profit earned by multinationals after they had been provided with tax breaks to invest in Israel. The Finance Ministry is seeking to give the firms incentives to repatriate some of this profit and generate tax revenue for the government.
In all, Teva (TEVA.N) will hand over 2.84 billion shekels to the state, a sum that also includes 840 million shekels to settle tax assessments from 2005 to 2011 as well as a payment of 336 million shekels it paid in May when it released some trapped profit.
According to Finance Minister Yair Lapid, Teva released 33 billion shekels in trapped profit.
State coffers will collect about 3.6 billion shekels this year in taxes on trapped profit from various Israeli companies, according to the tax authority.
Teva, the world's largest generic drugmaker by sales, said it would incur a charge of $235 million, which would be reported in fourth-quarter adjusted results.
Israeli companies have an estimated 120 billion shekels of trapped profit.
One aim of the government scheme is to encourage Israeli companies to distribute a dividend from undistributed profit that is tax exempt.
The deadline to take advantage of the program, in which companies can receive a 60 percent discount on the taxes they pay, is Monday at midnight.
On Sunday, Israel Chemicals (ICL) (ICL.TA), the world's sixth-largest potash producer, said its board decided to release all the trapped profit at units Dead Sea Works and Rotem Amfert Negev. As a result, ICL will pay 380 million shekels in taxes.
Teva's acting chief executive, Eyal Desheh, said the company reached a beneficial agreement with Israel's government.
"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," he said in a statement.
"We believe that such government policy strengthens the continued economic growth of the State of Israel by offering an attractive business environment for multinational companies like Teva to invest in Israel," he added.
(Reporting by Steven Scheer; Additional reporting by Ari Rabinovitch; Editing by Pravin Char)