GOI POSITIVE FOLLOWING SEPTEMBER 3 TALKS WITH

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 002800 SIPDIS SIPDIS E.O. 12958: DECL: 08/17/2017 TAGS: PREL PGOV KIRF VT IS SUBJECT: GOI POSITIVE FOLLOWING SEPTEMBER 3 TALKS WITH VATICAN REF: A. TEL AVIV 2576 AND PREVIOUS ¶B. VATICAN 106 AND PREVIOUS ¶C. JERUSALEM 1491 AND PREVIOUS TEL AVIV 00002800 001.2 OF 002 Classified By: Political Counselor Marc Sievers for reasons 1.4 (b) and (d) ¶1. (C) SUMMARY. GOI officials described the latest (September 3) round of negotiations with the Vatican on outstanding issues as "positive." GOI negotiator Shmuel Ben-Shmuel said the sides were "on the verge of a major breakthrough," and noted that the GOI tabled a new proposal on the taxation issue that would grant the Roman Catholic Church the same privileges as other "Most Favored Organizations" (text para 6). Ben-Shmuel stressed that the taxation issue was complex and said the GOI still needed time to ensure that any agreement reached with the Vatican does not open the door to similar demands for preferential treatment from other religious institutions. A senior official in President Peres' office noted that Peres and Pope Benedict XVI "exchanged positive remarks" about the issue during their September 6 meeting in Rome. END SUMMARY. -------------- "Most Favored Organization" Status -------------- ¶2. (C) Poloff met September 6 with MFA Bureau of World Jewish and Inter-Religious Affairs Head Shmuel Ben-Shmuel and MFA Director for Religious Affairs Bahij Mansour to discuss the results of the September 3 negotiations with Vatican representatives over outstanding economic issues related to the Fundamental Agreement between Israel and the Holy See. Ben-Shmuel and Mansour described the talks as "positive," and said they were "on the verge of a major breakthrough" on the taxation issue. Ben-Shmuel said the Israelis had tabled language (text para 6) that would treat the Roman Catholic Church as a "Most Favored Organization" -- meaning that for tax purposes, Vatican properties and operations in Israel would be treated like hospitals and other public or not-for-profit organizations involved in social welfare. Ben-Shmuel and Mansour were hopeful that the new GOI proposal would illuminate a path forward on the taxation issue. -------------- GOI Frustrated with Vatican Impatience -------------- ¶3. (C) Ben-Shmuel and Mansour also underscored the need for patience and creativity on the Vatican side. Reacting defensively to Vatican perceptions that the Israelis were dragging their feet in the talks, Ben-Shmuel argued that the Vatican failed to understand the complexity of the taxation issue for the Israelis. Not only did the GOI need to find a legal way to provide the Vatican with substantial tax exemptions, but it needed to do so in a manner that avoids creating a precedent for other religious institutions. He argued that if the GOI is not careful, it could end up in the untenable situation of having to provide similar privileges even to the many major Jewish institutions active in Israel. Ben-Shmuel said that the GOI's negotiating efforts were further complicated by the need to achieve inter-ministerial agreement on any deal reached with the Vatican. Mansour also highlighted the need to ensure that any agreement is able to pass the Knesset, which will have the final say when it is eventually called upon to enact enabling legislation. ¶4. (C) Poloff underscored USG interest in achieving a durable and mutually acceptable agreement between Israel and the Vatican, and urged the Israelis to continue their good-faith efforts to see the process through. Ben-Shmuel and Mansour said the GOI remained committed to the negotiations and was confident the sides would eventually reach agreement. They pointed out that they were already preparing for the next negotiating session on November 7, which would help pave the way for the planned December plenary. -------------- Peres and Pope "Exchange Positive Remarks" -------------- ¶5. (C) During a follow-up conversation September 11, Presidential Foreign Policy Advisor Orry Ben-Porath told Poloff that President Shimon Peres and Pope Benedict XVI only discussed the issue in passing during their September 6 meeting in Rome. According to Ben-Porath, the two "exchanged positive remarks" on the negotiation process, but avoided any further discussion. -------------- TEL AVIV 00002800 002.2 OF 002 Text of GOI's September 3 Taxation Proposal -------------- ¶6. (C) BEGIN TEXT OF GOI PROPOSAL (passed confidentially; please protect): Ad Referendum Nothing is agreed until everything is agreed. ARTICLE 8 -------------- ¶1. ELPs (Ecclesiastical Legal Person) shall enjoy, with regard to taxation, the most favorable rights and exemptions accorded by Israeli Law to any other similar "Public Institutions" and "Not for Profit Institutions." For the purpose of this Article the term "most favorable rights and exemptions" shall mean rights and exemptions no less favorable than those accorded by Israeli Law to any other similar "Public Institutions" and "Not for Profit Institutions." ¶2. For the purpose of this agreement the term "taxation" means: any requirement to make any kind or sort of compulsory payment to the State. For the purpose of this Article, it is hereby clarified that the term "State" does not include municipal, regional or local authorities. ¶3. The other matters on which the parties have agreed in relations to taxation are set forth in Schedule II. ARTICLE 7 -------------- will be deleted. SCHEDULE II: -------------- No. 11: will be deleted. No. 14: ELPs are subject to Employers' taxation at the most favorable rate applied to similar "public institutions and "not for profit institutions" under Israeli law. No. 24: will be deleted. END TEXT OF GOI PROPOSAL ********************************************* ******************** Visit Embassy Tel Aviv's Classified Website: http://www.state.sgov.gov/p/nea/telaviv You can also access this site through the State Department's Classified SIPRNET website. ********************************************* ******************** JONES