Why Israel CAN NOT Tax "High-Tech Sellouts" Post-2003 & The Rabinovitch Reform

Shlomo Katalan, University of Florida, Levin College of Law, Tax Program

Abstract

The title of this commentary goes after a 2000-headline, “Tax Engineers; While We Worry About Israeli Technology Leaving by the Front Door, Taxable Dollars are Flying Out the Window. So, What's the Point of a Tax Reform”, a report that display the frustration of the Israeli public with the phenomena of Israeli technology startups moving out of Israel, the loss of revenues on “High-Tech Sellouts”...On July 2002, sourced on the report of the Rabinovitch Committee, the Israeli parliament approved a major overhaul to the Israeli income tax system...The Rabinovitch reform, as implemented via Amendment No. 132, introduced numerous changes to Israel’s tax law provisions, many of them with relevancy to the high-tech sector...This list studies the phenomena of “high-tech emigration” and “High-Tech Sellouts,” with special attention to the Rabinovitch Report, and the 2005-“Mini” Tax Reform; In this list, I examine the notion that fiscal reform is the remedy for Israel’s problems keeping the high-tech sector in Israel and levy tax on revenues of this sector...Yet, despite the momentous reform of Israel’s tax laws, the underline policy of the reform to expend the Israeli tax base (with respect to “High-Tech Sellouts”) would not be accomplished...In the absence of clear tax or legal reason for emigration this study calls to consider, by default, the notion that, not only tax considerations, but also economic considerations drove Israeli ventures out of Israel.