(3) The amount of dividends paid tax due to their distribution that the minority company distributed to its shareholders is at a rate of 6% or more of the amount of the accumulated profits of the minority company at the end of the previous tax year; [Later in this subsection there is a definition of the term "dividends that were taxed due to their distribution"]
- I will try to simplify things as much as possible, in view of the weight given to the various issues in the framework of the petitions. As stated, in order to identify the company's excess profits, it is necessary to calculate the difference between the company's accrued taxable profits (as defined in the Ordinance) at the end of the previous tax year, and the higher of the three alternatives relating to the current tax year:
Financial shield: A total of ILS 750,000 (Section 81C(a)(1) to the Ordinance). This means that if the company's accrued profits do not exceed ILS 750,000, it will not be liable to pay tax on excess profits. It should be noted that if a controlling shareholder in a minority company is a controlling shareholder in an additional few companies, this sum will be divided among the few companies under his control, with the exception of those who have announced that they are relinquishing their share of the amount.
Expense Shield: The amount of the expenses of the minority company in the tax year or the average amount of the company's annual expenses in the tax year and in the two years preceding the tax year, whichever is higher (Section 81C(a)(2) to the Ordinance). The company's expenses were defined as its expenses that are allowed to be deducted, with the exception of expenses for the purchase of special assets as defined (see details regarding this definition below). As explained in the explanatory notes to the Law, the purpose of the expense shield is to neutralize the expenses required by the company for the purpose of financing its activity in a full tax year (ibid., at pp. 100-101).