DUBLIN: The so-called stability clause – on the basis of which Israel’s government promises not to amend a piece of legislation for a certain period of time – received a bad rap during the fight over the gas framework agreement. Controversial as it was and rejected by the High Court of Justice, the idea of promising that a tax rate or regulatory reform will immune from any change by the government for a certain period of time wasn’t unprecedented: Its first problematic appearance was actually within the framework of the 2005 amendment to the Law for Encouraging Capital Investment, when several far-reaching tax benefits were created. The most extreme of these included a commitment to near-zero tax rates for major exporters, and a government promise not to alter them for a decade.
This commitment explains how Teva Pharmaceuticals became the biggest beneficiary of tax breaks in Israel, equal to 3.2 billion shekels ($837 million) in 2013 alone.
The seriously problematic nature of the 2005 amendment emerged relatively early, such that by 2011 – well before the Knesset woke up and started complaining about it – the government decided to rescind the stability clause. Thus, that provision was mostly, albeit not entirely, repealed that year as part of an amendment to the Law for Encouraging Capital Investment. However, one related stipulation remained, relating to the so-called “strategic” track that offers special benefits for companies the state deems as strategically critical for the economy.
