The Israel Tax Authority, driven by infinite shortsightedness, ignorance and greed, has declared war on multinational tech development centers such as Google, Microsoft, Amazon, Intel and many others. The multinational tech development centers in Israel use cost-plus method for calculating tax which is essentially zero-corporate-tax privilege incentivizing multinationals to move R&D to Israel. Nothing is wrong with zero-corporate-taxation rate, this is win-win both for multinationals and Israeli economy. The “cost-plus” method is common in OECD countries. The high-paid employees of tech development centers still pay income tax to State of Israel. Besides personal income tax Israeli economy benefits from vast infrastructure of tech dev centers feeding thousands of subcontractor companies and businesses.
Yet some bureaucrats in Israel Tax Authority, who have not heard the expression “don’t fix what is not broken”, have come up with the “profit-split” scheme to calculate dev center tax as a contribution of the Israeli dev center activities to to the foreign company’s profits. The new taxation method is absolutely vague and messy leaving dev centers totally at the mercy of Israel Tax Authority which expects to boost state tax revenues through this ill-conceived scheme. In reality the intervention of Israel Tax Authority will only cause irreparable damage to Israeli economy, loss of taxes and brain drain. The multinational dev centers will just move to more tax-friendly jurisdictions without looking back to startup nation.