Monday,December 03, 2018    04.24PM / By Anat Shavit or Yuval Peled

Introduction

On 4May 2014 an inter-ministerial committee was set up to promote the establishmentof publicly traded funds for investment in infrastructure. The committee wasformed to examine and recommend measures and actions that would encourage theestablishment of traded infrastructure funds in order to:

• increase the availability of financing sources for infrastructure projects;
• reduce the financial costs of these projects; and
• enable small investors to directly participate and own these projects.

Tothat end, the committee has recommended certain tax benefits and restrictionsas outlined below.(1)

CommitteeReport

Foundersand investors should consult with an Israeli tax specialist when contemplatingthe formation of, or investment in, such traded infrastructure funds.

Taxand corporate governance model

Thecommittee generally recommends adopting a real estate investment trust(REIT)-based model, whereby there is only one level of taxation: taxation ofthe fund's shareholders – notwithstanding the fact that the fund will be formedas an Israeli corporation. However, the classification and calculation of thefund's income will be determined at the fund's level. The proposed corporategovernance model of the fund is also based on the REIT model (ie, for a fundwith no controlling shareholder, applying the 'five or fewer' rule, whichlimits the aggregate holdings of the five largest shareholders to less than50%).

Pensionfunds and non-Israeli investors

Thecommittee has proposed to generally exempt pension funds from their fund'sincome, regardless of the nature and classification of such income by the fund.With respect to non-Israeli investors, it proposes that ongoing income from thefund will be subject to tax in Israel, but will not create filing obligations.

Assets contribution inexchange for fund's shares

Thecommittee has proposed that, in general, a contribution of assets to the fundin exchange for the fund's shares will benefit the fund with a reduced purchasetax rate and the contributor with a deferral in respect of its capital gains.

Offsetting tax losses andforeign tax credits

Certainrestrictions have been proposed with respect to offsetting the fund's lossesand with respect to foreign tax credits.

Forfurther information on this topic please contact AnatShavit or YuvalPeled at Fischer Behar Chen Well Orion & Co by email ([email protected]or [email protected]).

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