Israel Tax Authorities Publish New Position Paper on Double Trigger Acceleration

On March 11, 2025, the Israeli Tax Authority (the “ITA“) published a new position paper (1/25) (the “Paper”) in which they describe their position regarding the tax implications of acceleration of equity awards pursuant to double trigger acceleration provisions under Section 102 of the Israeli Income Tax Ordinance [New Version] 1961 (the “Ordinance“).

Double Trigger Acceleration refers to circumstances in which unvested equity awards become vested as a result of termination of employment following the occurrence of an “exit event” in the company such as a sale transaction or IPO.

The Paper presents a different position than previously expressed by the ITA and therefore is a significant and important publication. The previous position was that double trigger acceleration disqualifies awards from beneficial tax treatment pursuant to Section 102 of the Ordinance.

With respect to double trigger acceleration provisions which were included in advance upon the grant of the equity awards, the Paper states that such acceleration will not be regarded as a violation of Section 102 of the Ordinance and that the following will apply:

• Where unvested awards are exchanged upon an exit event with future cash compensation:
  1. If upon payment of the cash amount the share price of the purchaser is higher than or equal to the share price on the date of closing of the respective transaction – the cash will be subject to tax in accordance with Section 102 of the Ordinance.
  2. If upon payment of the cash amount the share price of the purchaser is lower than the share price on the date of closing of the respective transaction: the percentage of decrease in value multiplied by the cash amount will be subject to ordinary income and the remainder will be subject to tax according to Section 102 of the Ordinance.

• Where unvested awards either remain outstanding following an exit event or are replaced/exchanged with another equity award – the acceleration of the award will not change the tax classification of the awards and the awards will be subject to tax according to the same tax arrangement. Therefore, if the equity awards were subject to tax pursuant to the trustee capital gains route of Section 102, they will continue to be subject to the beneficial tax arrangement.

The Paper also states that single trigger acceleration (hence the acceleration of the equity awards only as a result of the “exit event”) included in advance upon the grant of the equity awards, does not change the taxation of the equity awards.

The final issue discussed in the Paper is the ITA’s general position regarding the implications of acceleration of equity awards upon termination of employment which is unrelated to an exit event. In such case the ITA state that the beneficial tax provisions of Section 102 of the Ordinance will not apply and any income from such awards will be taxed as ordinary income tax.

It is clarified that the Paper presents the position of the ITA and is not part of legislation.

Please do not hesitate to approach us with any questions.

Sincerely,

Herzog Fox & Neeman