Intel Corp.'s $15 billion purchase of Mobileye N.V. most likely would not have gone ahead unless the Israel Tax Authority had agreed to Intel’s demand to structure the deal to exempt the company from paying tax on the distribution of a dividend to former shareholders, reports Bloomberg.
Tax practitioners have welcomed the “pragmatism” of the tax authority but warned that the special circumstances of the deal meant there are few implications for future settlements.
Intel completed its tender offer for the Israeli manufacturer of vehicle vision and safety technology on Aug. 8, announcing that shareholders representing some 84 percent of Mobileye’s stock had accepted it.
“We made this acquisition because we saw Mobileye as the leader and the innovation source around the computer vision in autonomous driving and autonomous vehicles in general,” Intel CEO Brian Krzanich told reporters in a conference call on Aug. 8. He said the potential market was “as big as $70 billion.”
Practitioners contacted by Bloomberg BNA disagreed with local news reports over the tax authority forgoing vast sums in tax over the deal.
Whether they missed out on billions “by enabling the deal is in the eye of the beholder,” said one lawyer with long experience of related tax issues who requested anonymity to discuss a private matter. “Personally, I think it was a courageous decision.”
On July 14, the company announced that it had secured “an acceptable tax ruling” from the Israel Tax Authority that reduced the vote needed to approve the deal from 95 percent to 67 percent. Crucially, the tax authority acceded to Intel’s demand that it recognize the deal as a sale of shares rather than a sale of assets. The terms of the merger agreement made the deal contingent on securing such a ruling. Previously, on May 16, the tax authority and the Bank of Israel announced that Intel would be able to pay taxes from the transaction in U.S. dollars because of the constantly-changing exchange rate.
Apart from the large size of the deal, it was further complicated because Mobileye, although founded and operated in Israel, was incorporated in Holland and also subject to Dutch company law, which requires a 95% majority for a share sale.
“The circumstances are unusual,” said Eli Clark, a U.S.-trained lawyer specializing in international taxation at Ickovics Neustadter Myers & Co. in Bnei Brak. “The tax authority had to make a decision as to whether or not to allow this treatment of the transaction knowing that the ruling was a condition of the transaction. Had they not issued the ruling, the transaction would never have taken place. From that perspective, I think this is very good news.”
Clark said a private ruling in such a large and complex case didn’t set a precedent for future deals, but “it shows that there is a level of pragmatism on the side of the tax authority, where they understand that sometimes taking a pure approach that might be justified from a legal perspective could actually in the end be bad for the Israeli economy.”
A spokesman for the Israel Tax Authority said Aug. 10 he could not discuss a private ruling due to “the duty of confidentiality.”
Lawyers for Intel and Mobileye contacted on Aug. 10 declined to comment.