Fearing Diplomatic Fallout, Israel Ends CA Tax Probe
The Israeli tax authority investigated suspicions that CA Israel, an Israel-based subsidiary of CA, failed to report 30 million dollars in income
Fearing possible diplomatic fallout with the United States, Israeli tax authority dropped a tax probe at an Israel-based subsidiary of software company CA Technologies.
The Israeli tax authority investigated suspicions that CA Israel, based in Herzliya, around 10 miles north of Tel-Aviv, failed to report 30 million dollars in income. The investigators found that the money came out of the U.S. military aid package given to Israel, designated chiefly for the acquisition of equipment from American companies.
CA Israel office in Herzliya, Israel
Rather than continuing the investigation, the Israeli State Attorney’s office suggested to settle for a forfeit arrangement requiring CA Israel agree to pay 9 million shekels (around $2.5 million).The company accepted the arrangement and the case was closed.
In September 2016 the U.S. agreed to provide Israel with a military aid worth $38 billion for a period of a decade, the largest ever aid package in U.S. history. This year’s aid package amounted to about 3.1 billion dollars, 15.6% out of Israel’s overall annual defense budget of $19.8 billion.
The aid package given to Israel is unique not only in size. Under the agreement signed in 2016 the U.S. government allows Israel to exchange 26.3% of the annual aid to Shekels to enable deals with local contractors until 2024. U.S. officials are uneasy about this arrangement, as the U.S. would like to see the money boosting the U.S .defense industry rather than its Israeli counterpart. After 2024 the portion of the annual aid converted to Shekels will decrease until phased out in 2028.
The investigation of CA Technologies related to events that took place about a decade ago, when the company signed an agreement with the Israeli Defense Ministry for the sale of software worth millions of dollars. The sum paid was initially filed in the books of CA’s Israel subsidiary, based in Herzliya, around 10 miles north of Tel-Aviv, but was then transferred to the parent company. Israeli tax investigators suspected the move was a ploy intended to avoid Israeli taxes.
Representing CA Israel, attorney Pinhas Rubin from Gornitzky & Co. law firm argued his client did not violate any tax laws, saying the registration of the money in Israel was a mistake that was later corrected, following an internal audit by the parent comapny.
In order to determine whether to submit an indictment, tax investigators had to conduct a judicial inquiry of CA executives in the US, to determine who gave the order to transfer the money and to find the reason for the transfer. Israel’s State Attorney office believed such a request for judicial inquiry might harm US-Israel relations.
Israel’s Ministry of Justice and the Israeli tax authority declined to comment.
CA Technologies said: “We comply with the applicable law in every country in which we are present and we are cooperating with the Israeli tax authorities in regard to the company’s tax filings”.
