Which Exchange Rate Applies to an M&A Deal?

The Israeli Supreme Court has just ruled when an M&A deal (merger & acquisition or “exit” deal) is considered done and which resulting exchange rate should be used to report the deal for Israeli capital gains tax purposes.


The Israeli shekel has its ups and downs, so exchange rates matter.

Many M&A deals are denominated in foreign currency but Israeli tax reporting is done in Shekels. Capital gains tax is reportable and payable within 30 days of the transaction, but when is that?

And what happens if an Israeli taxpayer sells shares at a price fixed in US dollars (or another foreign currency) but the exchange rate moves in the time gap between signing a sale agreement and the closing date? Such time gaps are very common and may be due to the due diligence process, getting governmental approvals, board approvals, shareholders’ approvals etc.. Surprisingly, the issue has been uncertain until now.

Shpunt Case:

Mr Alexander Shpunt was a founder of a Primesense Inc, a US corporation that owned Primesense Ltd of Israel, a video sensor tech group. On November 21, 2013 Apple Inc acquired the group reportedly for $360 million. The deal closed two weeks later later on December 5, 2013.  Mr Shpunt sold 125,860 shares for USD 4,198,015. On December 9, 2013 Mr Shpunt duly reported his gain for Israeli capital gains tax purposes.

However, the Israeli tax authority (ITA) assessed him to tax in Shekel terms at the Shekel dollar exchange rate prevailing on the signing date (November 21), namely 3.5629. Mr Shpunt claimed the closing date exchange rate of 3.524 prevailing on the closing date (December 5) should apply (i.e. less Shekels).

Court ruling:

Israeli Supreme Court ruled that the transaction date for tax and exchange rate purposes should be the date on which all requisite organs required by law have approved the deal, which ever is latest..

In this case, the was the date on which approval for the transaction was obtained from the Board and general shareholders; meetings of each company to the M&A deal, which ever was latest.


Now we know which day’s exchange rate to apply when reporting transactions denominated in foreign currency for Israeli tax purposes.

There were some secondary issues. Mr Shpunt elected to spread his gain over the last 4 tax years for tax purposes, apparently hoping to avoid an Israeli surtax (now 3%), but the Court ruled the surtax couldn’t be avoided this way based on what the law said.

Last and least, the ITA tried to argue that the principles of Tax Circular 19/2018, regarding delayed consideration payment, should apply. The District Court pointed out that a Circular dated 2018 couldn’t possibly have been discussed by the parties in this case dating back to 2013!

Next step:

Please contact us if you contemplate a cross-border M&A deal. Typical issues can include asset versus share (stock) deal, cash versus share consideration, tax and other approvals needed, intellectual property aspects, due diligence, stock options, earn-outs, future structure, double tax relief, coordinating all parties and aspects, etc.

[email protected]

(c) Leon Harris 28.5.23

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