The Israel Tax Authority (ITA) published a draft circular today about a sale of rights in a corporation when a portion of the consideration is paid to the seller at a future date.
In a considerable number of share sale transactions, the consideration mechanism is comprised of an immediate partial payment, while additional payments are contingent upon the fulfillment of particular parameters, for which there is no way of knowing if, when, and to what extent they will be fulfilled. For some of these transactions, the consideration derives from the achievement of particular milestones, such as sales, profits, or the stock-exchange price of the shares. For others, however, the consideration is a function of the development of a particular technology or a particular product, etc.
Up until now, the ITA's position was to tax the sale in respect of the entire consideration on the signing date of the sale agreementeven though there is no certainty about when such milestones will be achieved, if they will be achieved at all. Thus, if this draft circular is finalized, the situation will change for the better.
Pursuant to the draft circular, under particular circumstances, a seller of shares shall be able to split its reporting of the sale and the tax payment into two parts: a regular report of the consideration received and an additional report about the future consideration. A portion...