Zim could give up the Israeli flag due to a tax dispute

After years of losses Zim Integrated Shipping Services Ltd. (NYSE: ZIM) is now making profits, and the company has immediately started discussions with the Israeli tax authorities and the Treasury Department about the tax rate it should pay. Company sources have sent a “message” to Treasury Department officials that if the state does not adopt the proposed Occupancy Occupancy Act, enacted in many other countries around the world, that will and will not calculate tax rates based on occupancy the company’s profit, then it will relocate its activities to another country.

Under the direction of CEO Eli Glickman, Zim went public (IPO) on Wall Street in January 2021 at an enterprise value of $ 1.7 billion by the money. Since then, the company’s share price has risen 280% for the shipping company‘s market cap of $ 6.6 billion. This jump follows the company’s remarkable financial results over the past year, driven by the boom in the shipping industry. In the first nine months of 2021, Zim provided $ 636 million for income tax, representing 17.8% of the company’s profit of $ 2.935 billion for that period – the company also paid a dividend of $ 237 million Dollars to shareholders.

All of this follows years of heavy losses in which Zim did not pay taxes. In 2020, the company made losses of $ 1.523 billion. Now the profits not only cover the losses, but Zim is the most profitable company in Israel that has to pay a high tax rate.

Now that Zim has to pay hundreds of millions of dollars in taxes, the state is also talking about the Occupancy Tax Act initiative, which aims to drastically reduce the shipping companies‘ tax liability.

With the Occupancy Act method, income is calculated based on the occupancy rate of the ship the company operates – how many tons the ship can transport instead of the corporate tax of 25%, which has already been reduced by 30%. While corporate income tax relates to the profitability of the company, business tax relates to the size and performance of the company. Many countries around the world introduced occupancy tax 15-20 years ago, including the US, EU, Japan, China and India, but Israel did not do so despite discussions.

In any case, there have not yet been any shipping companies in Israel of the size that made the subject relevant. There was insufficient pressure on the Israeli government to move forward on this matter, but now Zim has put the issue back on the agenda.

According to tax expert Adv. Yaniv Shekel: “Usually the total tax rate is calculated separately for each ship and decreases the larger the ship is. For example, in Cyprus, the tax amounts that are levied on ships per year range between € 0.365 for the first 1,000 tonnes and € 0.31 for the next 9,000 tonnes and down to € 0.04 per tonne.

“That means that, for example, a 20,000-ton ship would pay an annual tax of around 5,000 euros, which is negligible compared to the profit that the ship can make.

“In Israel, tax legislation is mandatory for shipping companies. It is not clear and has been updated over the past few decades to adapt to changes in the world.”

How much tax Zim would pay as part of the occupancy tax in Israel is difficult to estimate, as it is unclear which model should be adopted. But even with rough calculations according to the bill previously presented in the Knesset, it is about a dramatic reduction in tax liability, which ranges from hundreds of millions of shekels to tens of millions.

The Israeli tax authorities are in talks about Zim’s current tax assessment and future taxes that will be imposed on the shipping company. Senior figures from the tax authorities, the Treasury Department and Zim, including CEO Eli Glickman, are involved in the discussions that the company said could determine Zim’s future in Israel.

But Zim’s majority shareholder, Idan Ofer, knows that his ability to “threaten” the Israeli government is limited. Along with Zim, Ofer is the majority shareholder of ICL (ELECTRIC SHOCK: ICL: NYSE: ICL), which has billions of shekels in revenue from government concessions and cannot relocate its factories abroad. There will also be delicate discussions about plans to move from Ofer Oil Refineries Ltd. (ELECTRIC SHOCK:ORL) from Haifa Bay.

Zim declined to comment on this report.

Published by Globes, Israel business news – en.globes.co.il – on January 12, 2022.

© Copyright Globes Publisher Itonut (1983) Ltd., 2022.

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