The
Tel Aviv District Court ruled recently in the tax case law of Kontera
Technologies Ltd on the application of employee stock option in cost plus
agreements. This issue is relevant for Israeli research and development
companies that service foreign related companies on a cost plus basis. In the
Kontera case, the judge, Magen Altuviah, ordered that expenses incurred by an
Israeli subsidiary of a US parent in relation with an employee stock option
plan should be included in the cost basis in calculating the cost plus payment
despite the fact that such expenses are disallowed as tax deductions for
Israeli tax purposes. The court accepted the position of the Israeli Tax
Authority in this case, which resulted in a significant increase in the
taxable income of the Israeli R&D subsidiary. For more information, see - Israeli Tax Update: the Kontera
Case
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