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Client updates / Technology
A new ruling may affect due diligence employment findings and reclassify high-tech companies as companies operating in the industrial sector.
Bank of Israel published a position paper with respect to the activity of banks' payment apps in the B2C market. The position paper is the conclusion of a long battle waged by credit card companies against the banks.
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.
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.
On June 2018, 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.
Categories: Start Ups
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. The key points in the announcement of ILITA – Transfers of personal information outside of EU member countries According to the principles specified in the provisions of the European directive regarding protection of personal information (Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data) (the "European Directive”) – the transfer of personal information outside the borders of European Union member countries is prohibited, except for specific exceptions, including transfers of information to a country that the European Union has deemed as providing an adequate level of protection for personal information. The Safe Harbor Arrangement The decision of the EU Commission of July 26, 2000 (Commission Decision 2000/520/EC) (the "EU Commission Decision”) prescribed that American corporations included in a Safe Harbor Arrangement, guarantee an adequate level of protection of personal information. According to the arrangement concluded between the U.S. Department of Commerce and the European Commissioner, an American organization desiring to be included in the arrangement must undertake strict principles for safeguarding personal information similar to the requirements of the European law and subject to the provisions of the European Directive (the "Safe Harbor Arrangement”). The Safe Harbor Arrangement enabled those same thousands of American companies sheltered under it (including such companies as Google, Facebook, Amazon and Microsoft) to transfer personal information about EU citizens from Europe to the United States, for the purposes of processing, saving and storage. Ruling of the European Union’s Court of Justice In the wake of the revelations that were made following the Edward Snowden exposé in 2013 about how U.S. intelligence agencies are making use of information, an Austrian citizen, Maximilian Schrems, who was a Facebook user, filed a complaint with the Data Protection Commission in Ireland alleging that American law and practice are failing to provide adequate protection against American authorities’ monitoring of information being transferred to the United States, including European users’ information stored in Facebook’s servers located in the United States. The Irish Data Protection Commission rejected the complaint, based mainly on the aforesaid EU Commission Decision, which approved the Safe Harbor Arrangement. In light of this, the aforesaid complaint was referred to the European Union Court of Justice. In its judgment of October 6, 2015, the European Court of Justice stated that, according to U.S. law, American companies’ commitment to comply with the Safe Harbor principles concerning use of information do not apply to public and government authorities in the United States, and therefore – American authorities’ demands for disclosure of information, on the grounds of national security or public interest, that are being issued to American companies, are compelling American companies to disclose personal information, even when such demands violate the provisions of the Safe Harbor Arrangement. The court ruled that, notwithstanding the provisions of the European Directive, the U.S. law enables the authorities there to access and process personal data in a manner that has no bearing on the purposes for which the information was collected, and that far exceeds what is strictly necessary and proportionate. According to the court ruling, the law in the United States cannot be defined as proportional, since it grants agencies authorities that are too sweeping, such as the authority to access and store all personal information of any kind of all persons whose data has been transferred from EU member countries, indiscriminately, without any restrictions or exceptions being made in the context of the objective pursued, and without prescribing criteria for setting limits to the government authorities’ access to data, and to their ability to make subsequent use thereof. According to the court’s line of reasoning, the legislation that grants blanket authorization to government authorities to access content of communicated messages – constitutes a material violation of the fundamental right to privacy. The court also stated that the U.S. law does not provide individuals any means of legal redress or of exercising their right to peruse personal data that is being stored about them in the United States, and thus, the U.S. law is prejudicing the fundamental right to effective judicial protection of their rights to privacy. In view of the aforegoing, the European Court has ruled that the EU Commission Decision approving the Safe Harbor Arrangement is invalid. Subsequently, the court also ordered the Irish Data Protection Commission to re-examine the complaint submitted to it and to ascertain whether it is warranted to suspend transfers of information of European Facebook users to the United States, on the grounds that it is impossible to guarantee adequate protection of this information. Repercussions of the European ruling on the privacy protection regime in Israel The Privacy Protection Regulations (Transfers of Information to Databases Outside the Borders of Israel), 5761 – 2001 (the "Regulations”) prohibit any cross-border transfer of information from a database in Israel, unless the local law of the recipient country guarantees a level of protection for the information that is not inferior to the level of protection under Israeli law, or unless one of the exceptions specified in the sub-sections of section 2 of the Regulations applies. One of the exceptions, specified in Regulation 2(8)(2), prescribes that personal information may be transferred from Israel to a foreign country to which the European Union permits information transfers. In light of the EU Commission Decision, which states that organizations that are committed to the principles of the Safe Harbor Arrangement are providing an “adequate level of protection” for personal information, as this term is defined in section 25(2) of the European Directive – the position of ILITA had been – up until now – that these companies fall within the scope of the exception that enables transfers of personal information from Israel pursuant to Regulation 2(8)(2) of the Regulations. Now, ILITA is stating in its announcement that, as a result of the above ruling of the European court, its position at this stage is that it is no longer possible to rely on this exception in the Regulations as a basis for justifying transfers of personal information from Israel to organizations in the United States. Given that the Safe Harbor Arrangement is no longer valid pursuant to European law, and for as long as some other valid arrangement is not put into place, or until such time as the European Union issues another official decision pertaining to information transfers from European Union member countries to destinations in the United States, database owners who want to transfer personal information from Israel to organizations in the United States are required to examine whether they can justify the information transfer based on one of the other exceptions specified in the Regulations.
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. The amendment establishes the National Authority for Technological Innovation (NATI), which is intended to replace the Office of the Chief Scientist (OCS). Prior to the amendment, the OCS is entrusted with the operation of the various state incentive programs pursuant to the Encouragement of Research and Development in the Industry Law 1984 (RD Law). In order to achieve the required flexibility, the NATI will be authorized to establish the various government incentive programs and to manage the incentives system pursuant to the RD Law. NATI will be headed by the Chief Scientist, and will be entrusted with the establishment of various incentive programs. This would replace all the existing programs either pursuant to the RD Law, and those promulgated by the General Manager of the Ministry of Economy, such as the incubator programs. Transfer of Know-howThe amendment cancels the existing provisions of the RD Law, and its regulations, regarding transfer of manufacturing outside of Israel and transfer of know-how outside of Israel. The NATI Council will be authorized to promulgate relevant provisions for each of the incentive programs.The existing provisions related to transfer of know-how outside of Israel will remain in force with respect to the current incentive programs and funding received thereunder for an interim period.Although the amendment emphasizes the need to retain know-how in Israel, this may lead to a more tailored approach to transfer of know-how requests with respect to existing incentive programs and address some of the difficulties encountered in cross border transactions. NATIThe Research Committees will remain the entity in charge of the granting of the incentives, the day to day administration and the decisions related to transfer of know-how and production.The NATI Council will be comprised of 8 members, including 3 representatives of the public. The inclusion of public representatives is intended to increase the dialog between NATI and the private sector and to ensure that NATI is responsive to market needs. However, the Council will not be able to approve any incentive programs without the presence of all the government representatives.NATI will be funded through the state budget and the royalty repayments due to the state treasury will be used to encourage technological innovation by NATI. In addition, in rare cases and if professionally justified, NATI may issue bonds for the purpose of funding certain incentive programs. The Amendment will enter into force on January 1, 2016 and all the incentives granted pursuant to the current RD Law will be deemed as granted by the NATI. NATI will also assume the Chief Scientist's obligations under any international research agreements.The Amendment holds a promise for more flexibility and new types of government incentives for innovative technologies. It remains to be seen whether the restructuring and the establishment of NATI will be executed as planned and whether the promise for transparent innovative governmental support will be fulfilled.