TAX LAW

Exemption for Foreign Residents Investing in Private Equity Funds
In May 2009, the Israeli Finance Ministry announced a significant change in the taxation of private equity funds. The Ministry announced that an exemption from Israeli capital gains tax will be granted to foreign residents investing in Israeli-based private equity funds, similar to the exemption available for investments in venture capital funds. In discussions with the Israeli Tax Authority, we were told that this change is effective immediately, subject to transitional rules regarding investments previously made in these private equity funds.


Israel – U.K. – New Double Tax Treaty
In April 2009 the Israeli Finance Ministry announced the execution of a new double tax treaty between Israel and the United Kingdom designed to replace the existing double tax treaty. The new tax treaty includes the following major changes: (i) dividends - withholding tax will be at a rate of 5% at the source country, or an exemption from withholding tax if the payee is a company holding at least 10% of the distributing company's rights; (ii) interest - withholding tax will be at the rate of 5% at the source country and an exemption from withholding tax on interest generated from government/corporate bonds or if the payee is a pension fund; (iii) royalties – an exemption from withholding tax at the source country on royalties; and (v) the new tax treaty includes new provisions in respect of taxation of pensions, trusts and real estate investment trusts (REIT).

The new double treaty is expected to become effective in 2010 after
ratification by both countries.

LITIGATION

Service of Process to a Foreign Defendant via a Local Israeli Entity

The Tel-Aviv District Court (re Almor v. Siemens Israel Ltd., et. al.) has recently approved service of process on a foreign entity via a local Israeli affiliate of the same group. The local entity was wholly owned by the


foreign entity, the directors of the local entity were appointed by the foreign entity and the foreign entity was involved in the management of the local entity.

The court held that expansion of international activities and the development of means of communication justify exposing a foreign entity to legal proceedings in a country in which it conducts business. Therefore, Israeli law recognizes the option to serve process on a foreign entity via a local Israeli representative through which the foreign entity conducts business in Israel.

The main criterion for determining the element of a "representation" relationship between the foreign entity and the local one is the degree of cooperation between the foreign entity and the representative so as to make it a reasonable assumption that the representative will convey the information regarding the lawsuit to the defendant. Such cooperation will be deduced from the facts of the case and will be based, among other factors, on using similar names, similar logos, holding of one of the entities by the other, the power of one to appoint directors of the other, and similar factors.


Factors for Determining the Forum Conveniens Regarding Foreign Defendants
The Israeli Supreme Court (re Arbel v. TUI AG, et. al.) has established the following three-part test for determining whether Israel is the forum conveniens with respect to a foreign defendant:

1. Which legal forum is most connected to the legal dispute?

2. What were the reasonable expectations of the parties with respect to the place of jurisdiction of the dispute?

3. Public considerations, primarily - which forum has a true interest in dealing with the legal conflict?

The burden of proof with respect to the forum being the convenient forum for adjudicating the dispute lies with the plaintiff. The Supreme Court
held that the greater the scope of trade between international entities, the more reasonable is their

expectation of being sued in one of the jurisdictions in which they conduct business. Therefore, the tendency of Israeli courts is to limit the scope of forum non-conveniens defense arguments, also in light of the development of transportation and communication means between countries which significantly reduces the inconvenience involved in litigation in a foreign forum.


Appealing Arbitration Verdicts
A recent amendment ("Amendment No. 2") to the Israeli Arbitration Law, 1968 (the "Law") added two new alternatives for challenging an arbitration decision, in addition to the existing alternative under the Law, which before the amendment only permitted the annulment of the arbitration verdict (by the same arbitrator or by a court).

The first alternative pursuant to Amendment No. 2 is filing an appeal with another arbitrator. The second alternative pursuant to Amendment No. 2 is filing an appeal with the district court (after obtaining permission from the court to file such appeal), where a claim is made with respect to a material error in application of the law which may cause a miscarriage of justice.

Both the first and second alternatives are dependent upon the parties having agreed in advance that the arbitration verdict will be appealable.
New Case Law on the Criminal Liability Implications of Managing Public Companies

Two recent decisions by Israeli courts shed new light on criminal liability in connection with management and control of public companies.

In Avihu Horwitz v. the State of Israel, the Israeli Supreme Court dealt with actions undertaken by officers in a group of companies, the purpose of which was to abuse the powers of management and control in public companies for transferring funds to their own accounts. Among the rulings in the field of corporate and securities law, the court held as follows:

• For the purpose of proving the offense of inducing a purchase or sale of securities, it is sufficient to show that a misleading representation or warranty was made.

• In order for a misleading representation or warranty to be established, not only does a material fact need to be concealed, but the surrounding facts need to be misleading.

• An illegal inducement of purchase or sale of securities can be done with respect to companies' boards of directors, and not only with respect to investors from the general public.

• Non-executive directors, namely directors that do not carry official managerial positions (and thus may be deemed as not involved in the day-to-day management of the company) may also be held liable for offenses that are attributed to managers of a company.

· An officer may be held liable for fraud and breach of fiduciary duties even where such actions did not cause material financial damage to the company.

· Disclosure with respect to a personal interest needs to be clear, explicit and detailed.

• A definition of a "Controlling Party" of a corporation will be based not only upon quantitative holdings but rather upon the ability to actually direct the activities of the corporation. The assessment will be based on a flexible qualitative-functional approach.

LABOR LAW

Terminating Employment of a Pregnant Employee Two Days Prior to Completion of
Six Months of Employment
Keren Makefet vs.Lesley Pinhas and others
Facts:
In this case, the employee's employment was terminated two days prior to the completion of

six months of her employment with the employer, and the employer pre-dated the termination date specified in the termination notice delivered to the employee by several days.

Ruling:
The Tel Aviv Labor Court ruled that, despite the fact that the Israeli Employment of Women Law, 1954, provides protection from termination only to a pregnant employee if she had been employed for at least six months, the employer is still prohibited from terminating the employment of a pregnant employee due to her pregnancy even if she had not yet completed six months of employment. The court explained that this rule is derived from the Israeli Employment (Equal Opportunities) Law, 1988 (the "Equal Opportunities Law"), the general principles of the law regarding equal rights and the good faith (bona fide) rules which apply to the employer.

In general, the plaintiff bears the first burden of proof to show that nothing in her behavior or act was the cause for her termination. Afterwards, the burden shifts to the employer to prove that the termination was not due to her pregnancy.

The Equal Opportunities Law grants the labor courts the authority to grant compensatory remedies, including for non-monetary damages, to an employee whose employment had been terminated due to her pregnancy.

In this case, the Labor Court imposed a compensation penalty against the employer in the amount of NIS 10,000 for non-monetary damages. In addition, the Labor Court ruled in favor of the employee for compensation due to loss of actual earnings from the date of termination and until the date the employee gave birth, as well as for the period from the completion of her maternity leave until the lapse of 45 days following the end of such

maternity leave period. Note that the Employment of Women Law was subsequently amended after this ruling, increasing the 45 day period to 60 days. Furthermore, the Labor Court granted compensation in favor of the employee due to employer's failure to satisfy its obligation to provide prior termination notice to the employee.

In addition, due to the court's concern regarding the employer's ability to pay the compensation amounts and due to the fact that the court was convinced that the employer‘s actions were performed in bad faith and that the employer willfully violated the employee's rights, the Labor Court decided to pierce the corporate veil and ruled that the Company’s officer will be personally liable to provide the employee with the compensation amounts ruled against the Company.

Assisting Israeli Employers with Compensation to Immigrants
and Returning Citizens
The Israeli Industrialists Association has published an overview regarding financing assistance to employers who employ employees that are under the status of "immigrants" or "returning citizens". The Ministry of Immigrant Absorption has agreed to partially finance the salaries of employees under the status of "immigrants" or "returning citizens" in Israel in the amount of half of the minimum salary (which currently stands at approximately NIS 3,850, according to Israeli law) per month, up to a period of no longer than six months. In
consideration, the employer needs to undertake to continue to employ the employees under the status of "immigrant" or "returning citizen" for a period of six months following such financing assistance.

In addition, the Ministry of Immigrant Absorption is continuing to assist facilities that carry out internal training courses and supporting programs at their facilities in order to train and qualify immigrants as new employees in Israel. While reviewing an employer's application, the Ministry of Immigrant Absorption considers, among others: the immigrant's profession, age, position in the facility, scope of employment, as well as the facility's geographic location, and the salary offered by the employer.

Period of eligibility:

- Immigrants- Up to 10 years from the day of their immigration to Israel.
-Immigrants from Ethiopia- Up to 15 years from the day of their immigration to Israel.
-Returning citizens- up to 24 months from the day of their return to Israel.

In order to obtain the assistance described above from the Ministry of Immigrant Absorption, the facility is required to complete and submit the appropriate application forms to the factory's nearest chamber of the Ministry of Immigrant Absorption.


Additional information can also be found in the Ministry of Immigrant Absorption's web site: http://www.moia.gov.il/