The calculation of the tax is seemingly simple: a tax of 2% will be imposed on the difference between the amount of the surplus profits of the minority company and the amount of the dividends distributed by it in that year. These are actually the company's accumulated profits. The answer to the question of what those "excess profits" are In section 81c(a) to the command, and that's where things start to get complicated:
(a) The amount of excess profits of a limited company shall be calculated, for the purposes of this Article, for each tax year, at the end of that year, as the difference between the amount of accumulated profits payable at the end of the previous tax year and the amount higher than the following:
(1) ILS 750,000; If an individual who is a controlling shareholder in a minority company is a controlling shareholder in a few other companies, the said amount will be divided among the number of companies under his control, but if one of the companies under his control notifies the tax assessor that it is relinquishing its share of the amount, the sum will be divided among the number of the few companies under his control that have not relinquished their share of the amount; In this regard, "control" - control as defined in section 85A, alone or together with another as defined in section 88;
(2) The amount of the expenses of the minority company in the tax year or an amount that is the average annual expenses of the company in the tax year and in the two years preceding the tax year, whichever is higher; However, if the company was established in the year preceding the tax year, it will be taken into account for the purpose of calculating the amount that is the average of the company's annual expenses, the company's annual expenses in the tax year and the year preceding the tax year; In this regard, "expenses" - the expenses that are permitted to be deducted, except for expenses for the purchase of special assets as defined in paragraph (3);
(3) The cost of the company's assets minus the cost of special assets, equity and the balance of a loan by a related party as defined in section 103, plus the cost of a held member of persons, all at the end of the tax year; [...]