Client updates / High Tech

A precedential judgment was handed down on option plans for employees in respect of section 102 of the Income Tax Ordinance. The court ruled that when a tax assessor is notified of the allocation of options in accordance with section 102 and fails to respond within 90 days, the plan is approved and the assessor cannot later claim that this is not so, except in very exceptional cases.

The Ministry of Economy and Industry and the Authority for Investments and Development of the Industry and Economy are presenting a series of steps to bring the Encouragement of Capital Investments Law in line with the Israeli market of 2019.

In March 2018 the Israel Innovation Authority launched a $264 Million National Digital Health Program, with the aim of promoting Israel as a leader in digital health, and improving the quality and quantity of digital health data to support the research and development of preventive and personalize medicine. The program includes a new National Genomic-Clinical Initiative, aimed at sequencing and analyzing the genomes of 100,000 Israeli volunteers, for the purpose of aiding drug discovery.

A new circular by the Israel Tax Authority determines the terms for granting options to employees when the vesting of such options is contingent upon performance milestones or the occurrence of an IPO or exit event.

The Delaware Court of Chancery issued a precedent recently, whereby an acquisition agreement may be cancelled due to the occurrence of a “Material Adverse Effect” (MAE) in the acquired entity.

Israel’s Innovation Authority (the IIA, formerly the Office of the Chief Scientist) has issued new rules regarding the licensing of IIA-funded know-how for use by multinational corporations outside of Israel.

The Israeli Prime Minister’s Office published a memorandum on the proposed Cyber Defense and National Cyber Directorate Law. This law is designed to regulate the National Cyber Directorate’s purpose, functions, and powers.

Moments before the new supervisory regime over financial asset service providers came into effect on June 1, 2018, the Minister of Finance signed an order postponing the effective date until the earlier of the following: October 1, 2018, or the issue date of the Prohibition on Money Laundering Order that addresses financial asset service providers.

While some uncertainty exists with regard to the regulatory regime that applies to public offerings of digital coins (ICOs), in the area of services related to digital currencies, regulations are expected to come into effect on June 1, 2018, within the scope of the Control of Financial Services Law.

The Tel Aviv District Court recently issued its ruling in a proceeding that has been underway for several months. The proceeding concerns a fintech company who filed a motion for an injunction that would prevent a bank from unilaterally modifying the terms and conditions for the fintech company’s bank account.

Israel’s government recently set forth a decision approving the key points of a national “safe identification” policy. The purpose of this policy is to define how a person’s identity is to be verified when receiving government services in a digital mode, in order to improve the services being provided to residents, and to simplify the access to these services.

The Israel Innovation Authority (IIA) announced last week that it issued new directives regarding royalty payments and know-how transfer. These are the first significant directives to be issued by the IIA since it was established in January 2016 and the activities of the Chief Scientist were transferred to it.

The Antitrust Authority published for public comments a new guidelines draft on the subject of information-sharing between competitors for the purpose of contending with cyber threats.

The Law establishes a mandatory licensing requirement for financial service-providers – credit providers or providers of financial asset services. One of the main innovations in this Law is that Financial Services Providers will be subject, for the first time, to supervision by a new financial regulator. 

On July the Israel Tax Authority presented its position that the sale of equity by a founder should be treated as a capital gain and not income, irrespective of whether such shares had been subject to a Reverse Vesting mechanism and/or Holdback. A double edged sword for entrepreneurs.

The social phenomena of crowdfunding, adopted by high-tech startups as an alternative means to raise funds, was previously limited in Israel by Israel’s Securities Law. Section 15 of the law dictates that any offer or sale of shares to the public (i.e. to more than 35 potential investors) requires the issuance of a prospectus approved by the Securities Authority; a timely and costly endeavor, rendering crowdfunding prohibitive in Israel.

The State of Israel has two official languages – Hebrew and Arabic. As a result, in recent years the Israeli Companies Registrar has held that all documents submitted to the Registrar have to be submitted in either of these official languages. If a document was submitted in English it would be rejected. Such documents include the constitutional documents – the articles of association of Israeli companies and debentures creating pledges over the assets of such companies.

Recently, an official announcement was issued on behalf of the Law, Information and Technology Authority of the Israeli Ministry of Justice (“ILITA“), as a result of the ruling of the European Union’s Court of Justice invalidating the Safe Harbor Arrangement governing transfers of personal information from Europe to the United States – at this stage, the transfer of personal information from Israel to organizations in the United States on the basis of that arrangement is prohibited.

On July 29, 2015 the Knesset passed the 7th Amendment to the Encouragement of Research and Development in the Industry Law. The purpose of the amendment is to allow the State of Israel to effectively and efficiently continue its support of the various companies which promote technological innovation and address the current challenges this industry faces in light of the importance of the high tech industry to the Israeli economy.