With TheMarker

Under fire from the Justice Ministry, the treasury has removed foreign companies and investors from the section of the tax reform proposal relating to 'transparent companies'.

So-called 'transparent companies' are ones in which profits and losses are related, for tax purposes, to shareholders instead of to the company.

The original government tax reform bill allows only Israel-registered companies to serve as transparent companies. An amended version would have extended the privilege to companies registered abroad.

The change to the change was announced by Income Tax commissioner Tali Yaron-Eldar at a meeting of the Knesset's Finance Committee today. The committee is discussing the tax reform bill ahead of its second and third votes in parliament.

Rubinstein yesterday asked Finance Minister Silvan Shalom to block debate on the changes before they are approved by government, TheMarker has learned.

The treasury's change to the bill, which would have extended the definition of 'transparent companies' to foreign ones, aroused a storm of criticism from the attorney-general too. His deputy, Davida Lachman-Messer, wrote a detailed critique of the amendments in general and in particular. That particular one, she said, could hinder Israel's efforts to join the OECD.

That specific provision, she said, would have turned Israel into a tax shelter.

A panel headed by CPA Yair Rabinovitch submitted its tax reform proposal to government a month ago. The proposal passed the first of three Knesset readings and is currently undergoing debate at the Finance Committee.

The version under discussion has been fundamentally changed since the first Knesset vote, though. The treasury introduced over 100 changes to the bill compared with the original version, arousing the ire of the attorney-general.

On the proposed change involving transparent companies, Rubinstein claimed that the proposed change would contradict another law already approved by the government.