company I.C.L (formerly ICL) will pay royalties in the amount of 188 million dollars (approximately NIS 640 million) for the surplus profits it produced from natural resources in Israel in 2016-2020, in what will end the company’s dispute with the tax authority – this was agreed in a compromise settlement reached by the parties.
ACL reports that it has reached an agreement with the Authority regarding the payment of tax on excess profits, with the agreement also establishing a formula for calculating the tax for the years 2021 and beyond. According to market estimates, following the agreement, ACL is expected to transfer by the end of the year about NIS 2 billion to the state’s wealth fund (the amount includes the royalties for 2016-2020 as well as the years 2021-2022). “The company welcomes the end of a dispute that came to an end in negotiations, prevented years-long legal proceedings and provides business certainty for the years to come,” the ICL management said.
The dispute between the tax authority and the company that broke out in 2018 concerned ACL’s position in the report it submitted regarding the levy payments for natural resources. While the state expected at the time to receive royalties in the amount of approximately NIS 400 million for the company’s excess profits on the production of potash and other natural treasures in the Dead Sea region, ACL claimed that the amounts were significantly lower.
ACL was due to start paying excess profits tax in 2016, and has filed assessments for the tax every year since. However, as part of its financial statements for 2018, the company announced that in its opinion it has no tax liability at all. This is in light of an appraiser’s opinion, which states that the value of its fixed assets is 6 billion dollars – a much higher amount than the state assumed in its calculations.
The tax model imposed on the company for excess profits from natural resources is based on the value of the assets that it uses to extract the resources. The company stated in its financial statements that “there is no tax liability for excess profits tax”, but added that “the position of the tax authority may differ substantially, and even by substantial amounts, as a result of a different interpretation as to how the law is implemented.”
The payments required from the company are based on the law on taxation of natural resources enacted following the recommendations of the Shashinsky 2 Committee from 2014. Following the gas discoveries and the expected profits for entrepreneurs, the state decided to impose a tax so that the public would be able to receive a larger share of the revenue from the sale of the national resource.
The tax money that the gas and natural resource producers will pay on their excess profits is deposited in a fund for the citizens of Israel – the “National Wealth Fund”, which is supposed to invest in projects for the benefit of the public. After about four years in which the fund faltered and its operation was delayed, in May of this year the wealth fund was opened in which NIS 1.14 billion was accumulated.