Equity Plan Tax Rulings – Important Update

Four tax rulings previously required with respect to equity incentive plans are no longer needed!

We are pleased to update that the Israel Tax Authority distributed an update according to which companies do not need to seek specific tax rulings with respect to the following issues connected to employee equity plans:

1. Non trustee ESPP
2. Trustee ESPP
3. Net-exercise mechanism for public companies
4. Cash dividend adjustments and other adjustment mechanism due to changes in capital

Instead of submitting a request to the Tax Authority for a specific tax ruling, companies are now required only to file a notice with their withholding assessing officer, confirming that they satisfy and will continue to comply with the conditions set out in the fast‑track tax ruling forms published on the Tax Authority’s website.

The forms published on the Israel Tax Authority’s website are substantially shorter and more limited in their requirements than the versions that the ITA has periodically updated over the past two and a half years. Therefore, the current position of the Israel Tax Authority provides a significant benefit to companies which have not yet sought to receive these rulings with respect to their plans, both with respect to need to obtain a ruling and with respect to the provisions of the tax ruling.

Tax rulings already issued by the Israel Tax Authority remain in force and cannot be revoked. The notice further clarifies that submissions made under the new procedure do not have retroactive effect. In addition, the notice expressly states that it does not replace any prior, valid tax rulings.

Please do not hesitate to reach out to us with any question you may have or if you are in need of assistance with filing such a notice.