Holding Company It is a company that is used by its shareholders for the purpose of holding control of other companies. Since a dividend transferred between the subsidiary and the parent company is not considered taxable income of the receiving company (Section 126(b) to the Ordinance), the holding company can serve as a hostel for the accumulation of profits generated by the companies it holds, and use them for the purpose of investing in assets that are not related to its field of activity. In this case, too, there is a significant concern that the tax benefit will be used for purposes other than the purposes for which it was determined.
- Over the years, and in fact already since the Mandate period, various attempts have been made to reduce the possibility of abuse of the two-stage regime. Thus, in 1942, section 22 of the Income Tax Ordinance, 1941 (which deals with the authority of the tax assessor to ignore artificial transactions; an authority that is currently enshrined in section 86 in the current version of the Ordinance) was added to section 22 of the Income Tax Ordinance, 1941 (which deals with the authority of the tax assessor to ignore artificial transactions; a power that is currently enshrined in section 86 in the current version of the Ordinance) that allows the tax assessor to determine that a company controlled by up to five persons and has not distributed a dividend, in circumstances in which the clerk believes that the non-distribution is intended to evade or reduce tax - will be considered as having distributed a dividend. The provisions of this section were amended several times in subsequent years in order to facilitate its use. Later, when the new version of the Ordinance was published in 1961, the aforementioned provisions were incorporated into sections 76 to 81 of the Ordinance, with the provision of section 77 at the center of which stipulated in the formula at the time that:
(a) If the Commissioner considers that a limited company has not distributed as dividends to its shareholders, until the end of twelve months after a certain tax year (hereinafter - the said period), its profits that are taxable for that tax year or part thereof, and that it is able to distribute its profits or part thereof without prejudice to the existence and development of a transaction, and that the result of the non-distribution is tax avoidance or tax reduction, he is entitled [...] to instruct the tax assessor to treat those profits as if they were distributed as dividends.