In May 2017, the Company received a best judgment tax assessment from the Israel Tax Authority (the "ITA") with respect to an audit of the Company for the fiscal years 2012-2014 (the "Assessment"), for an aggregate amount of tax against the Company, after offsetting all operating losses for tax purposes available through the end of 2014, of approximately NIS 207 million (currently approximately U.S. $58 million) which amount includes related interest and linkage differentials (as of date of the Assessment). All amounts related to the Assessment are given after application of the Company's accumulated losses. Approximately 80% of the amount of the Assessment, assuming that all accumulated losses are set off against the other matters included in the Assessment, relates to the following two matters: (1) the use of tax exempt profits derived from the Company's approved and benefitting enterprises under the Law for the Encouragement of Capital Investment, 1959, in particular in its investments in, or acquisitions of, foreign subsidiaries; and (2) the purchase of shares of the Company by its foreign subsidiaries during the audit period. The Company has not taken any reserves or provisions related to these two matters because it reasonably believes its positions are more likely than not correct as a legal matter. The Company intends vigorously to contest the ITA's position on both of these matters and does not anticipate establishing a provision related to these matters. The other significant item in the Assessment relates to the Company's transfer pricing. As of September 30, 2017, the Company's tax provisions with respect to the audit period cover at least a majority of the remaining 20% of the Assessment. However, because of the ongoing criminal investigation against the Company, certain of its employees and its tax consultant related to tax positions taken by the Company in the audit period as well as in prior periods, the Company has not completed a comprehensive independent review of the work of its employees and tax consultant involved in evaluating and establishing its tax positions, including with respect to this and certain other matters that are the subject of the Assessment. The Company has begun this review process in connection with the preparation of its annual financial statements and annual report, however it cannot assure investors of the timing or outcome of such review.
If the Company's evaluation of its tax positions proves to be inaccurate, it may be required to increase its provisions or take a charge in future periods. The outcome of its review may also impact the Company's results of operations as a result of tax positions taken for subsequent fiscal years. The amount of the increase and/or the charge against earnings could be material with respect to the audit period and subsequent periods. In addition, the Company does not have any insight into the scope or time period of the criminal investigation or the timing of any prosecutorial action related to the investigation which may occur in the coming days, weeks, months or years. Although the Company cannot predict the timing of any prosecutorial action, the Company expects to be summoned to the prosecutor's office for a hearing, at which it will have the opportunity to present its positions, prior to any indictments of the Company and/or certain of its employees and/or payment of monetary amounts in lieu of such indictments. The Company has not conducted its own investigation into any matters that may be the subject of such investigation and will only do so once the criminal investigation has been completed. The Company intends vigorously to contest the Assessment in accordance with Israeli law as well as defend itself and its employees in the criminal matter, but it cannot assure investors as to the outcome or timing of completion of either process, including the amount of tax ultimately payable related to 2012-2014 and prior fiscal years, or any additional taxes, penalties, criminal sanctions, indictments, fines and other amounts or that may be imposed as a result of the Assessment and criminal investigation, which may be material in amount or in adverse impact on the Company's results of operations, financial position and reputation.
The foregoing information should be read in connection with the Company's Annual Report on Form 20-F for the year ended December 31, 2016, and subsequent SEC filings. The Company is subject to the foregoing and other risks detailed in those reports. The Company assumes no obligation to update the information in this press release to reflect new information, future events or otherwise, except as required by law.
Company Contact:
Rami Rozen
Director of Investor Relations
Orbotech Ltd
Tel: +972-8-942-3582
Rami.rozen@orbotech.com
Tally Kaplan Porat
Director of Corporate Marketing
Orbotech Ltd
Tel: +972-8-942-3603
Tally-Ka@orbotech.com
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SOURCE Orbotech Ltd.
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