NOTE 10 - TAXES ON INCOME

 

 

Protalix BioTherapeutics, Inc. is taxed according to U.S. tax laws. The Company’s income is taxed in the United States at the rate of up to 39%.

 

On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, which among other changes reduces the federal corporate tax rate to 21%.

 

 

The Israeli Subsidiary is taxed according to Israeli tax laws:

 

 

The income of the Israeli Subsidiary, other than income from “Approved Enterprises,” is taxed in Israel at the regular corporate tax rates which were 26.5% for fiscal year 2015.

 

In January 2016, the Law for the Amendment of the Income Tax Ordinance (No. 216) was published, enacting a reduction of corporate tax rate beginning in 2016 and thereafter, from 26.5% to 25%.

 

In December 2016, the Economic Efficiency Law (Legislative Amendments for Implementing the Economic Policy for the 2017 and 2018 Budget Year), 2016 was published, introducing a gradual reduction in corporate tax rate from 25% to 23%. However, the law also included a temporary provision setting the corporate tax rate in 2017 at 24%. As a result, the corporate tax rate was 24% in 2017 and will be 23% in 2018 and thereafter.

 

Capital gain is subject to capital gain tax according to the corporate tax rate for the year during which the assets are sold.

 

 

Under the Encouragement of Capital Investments Law, including Amendment No. 60 to the Encouragement of Capital Investments Law as published in April 2005, by virtue of the “Approved Enterprise” or “Benefited Enterprise” status the Israeli Subsidiary is entitled to various tax benefits as follows:

 

 

Income derived from the Approved Enterprise during a 10-year period commencing upon the year in which the enterprise first realizes taxable income is tax exempt, provided that the maximum period to which it is restricted by the Encouragement of Capital Investments Law has not elapsed.

 

The Israeli Subsidiary has an “Approved Enterprise” plan since 2004 and “Benefited Enterprise” plan since 2009. The period of benefits in respect of the main enterprise of the Company has not yet commenced. The period during which the Company is entitled to benefits in connection with the Benefited Enterprise expires in 2021.

 

If the Israeli Subsidiary subsequently pays a dividend out of income derived from the “Approved Enterprise” or “Benefited Enterprise” during the tax exemption period, it will be subject to tax on the gross amount distributed (including the company tax on these amounts), at the rate which would have been applicable had such income not been exempted.

 

 

The Israeli Subsidiary is entitled to claim accelerated depreciation, as provided by Israeli law, in the first five years of operation of each asset, in respect of buildings, machinery and equipment used by the Approved Enterprise and the Benefited Enterprise.

 

 

The Israeli Subsidiary’s entitlement to the benefits described above is subject to its fulfilling the conditions stipulated by the law, rules and regulations published thereunder, and the instruments of approval for the specific investment in an approved enterprise. Failure by the Israeli Subsidiary to comply with these conditions may result in the cancellation of the benefits, in whole or in part, and the Subsidiary may be required to refund the amount of the benefits with interest. The Israeli Subsidiary received a final implementation approval with respect to its “Approved Enterprise” from the Investment Center.

 

In recent years, several amendments have been made to the Encouragement of Capital Investments Law which have enabled new alternative benefit tracks, subject to certain conditions.

 

The Encouragement of Capital Investments Law was amended as part of the Economic Policy Law for the years 2011-2012, which was passed by the Israeli Knesset on December 29, 2010.

 

The amendment sets alternative benefit tracks to those currently in effect under the provisions of the Encouragement of Capital Investments Law.On December 29, 2016, Amendment 73 to the Encouragement of Capital Investments Law was published. This amendment sets new benefit tracks, inter alia, “Preferred Technological Enterprise” and “Special Preferred Technological Enterprise” (the “Capital Investments Law Amendment”).

 

The Company elected not to have the Capital Investments Law Amendment apply to the Company.

 

 

As of December 31, 2017, the Company had aggregate net operating loss (“NOL”) carry-forwards equal to approximately $207 million that are available to reduce future taxable income as follows:

 

 

The Company’s carry-forward NOLs, equal to approximately $23 million (as of December 31, 2016, approximately $20 million), may be restricted under Section 382 of the Internal Revenue Code (“IRC”). IRC Section 382 applies whenever a corporation with NOL experiences an ownership change. As a result of IRC Section 382, the taxable income for any post change year that may be offset by a pre-change NOL may not exceed the general IRC Section 382 limitation, which is the fair market value of the pre-change entity multiplied by the IRC long-term tax exempt rate.

 

 

At December 31, 2017, the Israeli Subsidiary had approximately $184 million (as of December 31, 2016, approximately $133 million) of carry-forward NOLs that are available to reduce future taxable income with no limited period of use.

 

 

The components of the Company’s net deferred tax assets at December 31, 2016 and 2017 were as follows:

 

		December 31,
		2016				2017
(U.S. dollars in thousands)
In respect of:
Timing Differences		$	3,520			$	11,335
Net operating loss carry forwards			38,515				47,033
Valuation allowance			(42,035)				(58,368)
			-				-

 

Deferred taxes are computed using the tax rates expected to be in effect when those differences reverse.

 

 

The main reconciling item between the statutory tax rate of the Company and the effective rate is the provision for a full valuation allowance in respect of tax benefits from carry forward tax losses due to the uncertainty of the realization of such tax benefits (see above).

 

 

In accordance with the Income Tax Ordinance, as of December 31, 2017, all of Protalix Ltd.’s tax assessments through tax year 2012 are considered final.

 

A summary of open tax years by major jurisdiction is presented below:

 

 

(*) Includes federal, state and local (or similar provincial jurisdictions) tax positions.