MFA CITES MAJOR PROGRESS ON TAXATION ISSUES IN

C O N F I D E N T I A L TEL AVIV 000931 SIPDIS E.O. 12958: DECL: 04/26/2019 TAGS: PREL PGOV KIRF IS SUBJECT: MFA CITES MAJOR PROGRESS ON TAXATION ISSUES IN TALKS WITH VATICAN REF: VATICAN 57 Classified By: PolCouns Marc Sievers for reasons 1.4 (b,d) ¶1. (C) Summary: MFA Director for Religious Affairs Bahij Mansour told Poloff April 27 that the most recent (April 24) working-level talks between Israel and the Vatican resulted in significant progress on several outstanding taxation issues, including an agreement in principle that the Vatican will not be subject to real estate tax for Church properties where no businesses are operating. While noting that GOI principals still need to examine the deal, Mansour was hopeful that it could be adopted at the April 30 plenary talks in Jerusalem. While Mansour has in the past described progress that failed to materialize, the GOI is interested in delivering on at least some aspects of the negotiations in advance of the Pope's May visit to Israel. End summary. ¶2. (C) MFA Director for Religious Affairs and chief GOI negotiator with the Vatican Bahij Mansour told Poloff April 27 that the most recent (April 24) working-level talks between Israel and the Vatican over implementation of the 1993 Fundamental Agreement resulted in significant progress on several outstanding taxation issues. While refusing to divulge many details, Mansour noted that during the talks, the fiscal working group of the GOI's interagency negotiating team offered the Vatican a deal on real estate taxes ("arnona") that would exempt those church properties where no businesses are operating from real estate tax. Mansour added that progress had also been made on other forms of direct and indirect taxation, but he declined to provide details, citing the need for GOI principals to consider the negotiating team's offer before revealing its content to any third parties. ¶3. (C) If all goes well, Mansour said, the April 30 plenary session in Jerusalem -- to be headed by MFA Deputy FM Danny Ayalon and Holy See Undersecretary for Relations with States Pietro Perolin -- could result in the signing of a fiscal agreement which GOI negotiators hope to promote as a sign of Israel's good faith and a deposit on the progress they hope to make in the near future on other outstanding issues. He suggested this progress would contribute to a positive atmosphere for Pope Benedict XVI's upcoming (May 8-15) visit to Israel, Jordan and the Palestinian territories. ¶4. (C) Comment: Mansour's account of a breakthrough on taxation is welcome news, if true. However, Mansour has in the past not done a very good job of reading the satisfaction level of his Vatican counterparts, or of predicting what kinds of concessions his political bosses will tolerate. At the same time, and weighing in support of Mansour's rosy outlook, the GOI remains deeply interested in making visible progress toward concluding the Fundamental Agreement ahead of the Pope's visit. While it appears unlikely that the sides will be able to breach all their outstanding differences, a sub-agreement on taxation would add a positive note to the Papal visit and re-energize both sides toward a near-term conclusion to these seemingly endless negotiations. ********************************************* ******************** Visit Embassy Tel Aviv's Classified Website: http://www.state.sgov.gov/p/nea/telaviv ********************************************* ******************** CUNNINGHAM