Cisco Israel asks to distribute $175 million as dividend
This move essentially is the transfer of more than half of the Israeli company's assets abroad, which as of January 31 amounted to NIS 970 million
After laying off 1,000 out of 1,500 employees in Israel in the past four years, Cisco wants to transfer more than half of its Israeli branch’s assets abroad. The board of directors of Cisco Systems Israel, a subsidiary, recently decided to distribute NIS 570 million (about $175 million) as dividends, the company’s entire equity, to its sole owner - Cisco Systems Netherlands.This move essentially is the transfer of more than half of the Israeli company's assets abroad, which as of January 31 amounted to NIS 970 million (just below $300 million). Cisco will finance the dividend, including through the conversion of loans granted to related companies in favor of Cisco Netherlands.
Cisco Israel, which develops computer communication technology and marketing support for the global company, reported last week to the local tax authority that it has turned to the courts to authorize the payment of the dividend.
The operating profit grew
Cisco Israel's largest item of expenditure revolves around R&D, mostly in salaries, which amassed to an average of 70% of the revenues during 2019-2020. It is followed by marketing expenses, with an average of 20%, and the administrative and general expenses item, which stands at 5%.The Israeli company’s 2020 operational profit was NIS 22 million ($6.75 million), which constituted about 4.5% of total revenues. It is also a small increase compared to 2019’s NIS 19 million ($5.8 million), which constituted about 3.5% of revenues. In the first half of 2021, Cisco Israel recorded an operational profit of NIS 15 million ($4.6 million), which constitutes approximately 6% of revenues.
According to the information in the report, the Israeli company's income is subject to corporation tax of 23%, while under the Investment Encouragement Law the tax rate is 16%. In 2020, it paid NIS 11 million in tax (just below $3.5 million), and in 2019 it paid NIS 12.5 million ($3.8 million). In September 2020 the company signed an agreement with the Tax Authority for the years 2013-2016, and accordingly, it was determined that it would pay an additional tax of approximately NIS 65 million (almost $20 million).In light of the dividend distribution, the company can expect an additional income tax claim. According to attorney and accountant Simon Yaniv, who specializes in international taxation, according to the taxation treaty between Israel and the Netherlands, the tax authority is entitled to deduct tax from the dividend at a 10% rate in relation to exempt profits or those that were previously taxed at a lower rate, and 5% of the rest of the amounts handed out.
“The Tax Authority is expected to claim that by reducing its capital, Cisco is relinquishing its assets in essence, and therefore the Authority will ask to tax the company on the capital level,” he added. “In 2018 the Tax Authority published information that makes a distinction between the distribution of dividends from excess profits that can be distributed, and a dividend that reduces the company's capital."