Embattled Teva settles one thorny problem with $718M Israeli tax deal

Teva Pharmaceutical Industries ($TEVA) and Israeli tax authorities have buried the hatchet. The generics giant agreed to pay 2.54 billion shekels, or about $718 million, to resolve longstanding disputes over back taxes. Teva gets a big discount on its tax bill, and the Israeli government gets its money--or at least part of it.

That $700 million-plus is a hefty sum for a company with 2012 sales of $20 billion. But $565 million of that amount represents tax on "trapped profits," or profits allowed to be sequestered as part of an Israeli investment-incentive program. The company has so far avoided paying the government bill on those earnings, but it also hasn't been able to spend the cash. The Israeli government was offering a 60% discount on taxes for companies that agreed to foot the bill by midnight last night, Reuters reports.

So, the tax deal allows Teva access to funds that can cover dividends, for instance, or M&A. "The agreement generates sources for dividends to our shareholders for years to come and settles tax assessments which had been in dispute for a long time," acting CEO Eyal Desheh said in a statement. Teva will take a $235 million charge against earnings related to the tax bill.

The tax settlement has been in the works for awhile, and it became clear over the last few weeks that an announcement was near. Teva officials blamed the tax liability for layoffs planned in Israel--and since put on hold after a firestorm of protest. The tax negotiations, then, were set against a backdrop of strike threats, contentious meetings with labor leaders, and arm-twisting from government officials. Not to mention the conflict between Teva management and its board, which ended with ex-CEO Jeremy Levin's departure two weeks ago.

Did Teva's decision to hold off on job cuts in its home country buy it any extra leeway with tax authorities? That's not clear. But blaming the layoffs on taxes would have been a shrewd negotiating move. Trading jobs for tax breaks is a time-honored tradition, after all.

- see the release
- read the Reuters story

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