Israel 1998-2002: 'Israeli Technology Leaving by the Front Door', 'Taxable Dollars are Flying Out the Window' Can Israel Tax 'High-Tech Sellouts' Post-2003 & The Rabinovitch Tax Reform‘

Abstract

As of the mid 90's Israeli high-tech firms were no longer established to become a multi-national corporation, but “to be sold-out to foreign multinationals as quickly as possible. Impressive have been the prices that foreign firms have been willing to pay to acquire Israeli start-ups; a landmark “Sellout” that generated wide media coverage was the acquisition of Mirabilis, inventor of the popular chat program ICQ, by AOL in 1998 for $287 Million. Nevertheless, “High-Tech Sellouts” had negative ramifications for Israel. As more of the money behind Israeli projects came from the United States, some feared that the country's high-tech industry is losing its unique traits and become “Americanized. The title of this commentary goes after a 2000-headline, “Tax Engineers; While We Worry About Israeli Technology Leaving by the Front Door, Taxable Dollars are Flying Out the Window. So, What's the Point of a Tax Reform,” a report that displayed the frustration of the Israeli public with the phenomena of Israeli technology startups moving out of Israel, the loss of revenues on “High-Tech Sellouts. This list studies the phenomena of “high-tech emigration” and “High-Tech Sellouts,” with special attention to the Rabinovitch Report, and the 2005-“Mini” Tax Reform. In this list, I challenge the conventional wisdom in Israel that faulty fiscal regularity is the only and chief reason that drove the high-tech sector out of Israel. I will demonstrate this claim by examining the Rabinovitch Tax and the 2005 Mini Tax Reform and its impact technology startups, entrepreneurs and foreign investors.