CERTAIN
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion is a summary of certain material U.S. federal income tax considerations to U.S. Holders (as defined below) of the
ownership and disposition of ordinary shares and warrants. This discussion applies only to ordinary shares and warrants, as the case
may be, that are held as “capital assets” within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as
amended (the “Code”) (generally, property held for investment).
The
following does not purport to be a complete analysis of all potential tax considerations arising in connection with the ownership and
disposition of ordinary shares and warrants. The effects and considerations of other U.S. federal tax laws, such as estate and gift tax
laws, alternative minimum or Medicare contribution tax consequences and any applicable state, local or non-U.S. tax laws are not discussed.
This discussion is based on the Code, Treasury regulations promulgated thereunder, judicial decisions, and published rulings and administrative
pronouncements of the U.S. Internal Revenue Service (the “IRS”), in each case in effect as of the date hereof. These authorities
may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a
manner that could adversely affect the tax consequences discussed below. Alpha Tau has not sought and will not seek any rulings from
the IRS regarding the matters discussed below. There can be no assurance the IRS will not take or a court will not sustain a contrary
position to that discussed below regarding the tax consequences discussed below.
This
discussion does not address all U.S. federal income tax consequences relevant to a holder’s particular circumstances. In addition,
it does not address consequences relevant to holders subject to special rules, including, without limitation:
| ● | banks, insurance companies, and certain other financial institutions; |
| ● | regulated
investment companies and real estate investment trusts; |
| ● | brokers,
dealers or traders in securities; |
| ● | traders
in securities that elect to mark to market; |
| ● | tax-exempt
organizations or governmental organizations; |
| ● | U.S.
expatriates and former citizens or long-term residents of the United States; |
| ● | persons
holding ordinary shares and/or warrants, as the case may be, as part of a hedge, straddle, constructive sale, or other risk reduction
strategy or as part of a conversion transaction or other integrated investment; |
| ● | persons
subject to special tax accounting rules as a result of any item of gross income with respect to ordinary shares and/or warrants, as the
case may be, being taken into account in an applicable financial statement; |
| ● | persons
that actually or constructively own 5% or more (by vote or value) of outstanding and issued stock of Alpha Tau; |
| ● | “controlled
foreign corporations,” “passive foreign investment companies,” and corporations that accumulate earnings to avoid U.S.
federal income tax; |
| ● | S
corporations, partnerships or other entities or arrangements treated as partnerships or other flowthrough entities for U.S. federal income
tax purposes (and investors therein); |
| ● | U.S.
Holders having a functional currency other than the U.S. dollar; |
| ● | persons
who hold or received ordinary shares and/or warrants, as the case may be, pursuant to the exercise of any employee stock option or otherwise
as compensation; and |
| ● | tax-qualified
retirement plans. |
For
purposes of this discussion, a “U.S. Holder” is any beneficial owner of shares of ordinary shares and/or warrants, as the
case may be, that is for U.S. federal income tax purposes:
| ● | an
individual who is a citizen or resident of the United States; |
| ● | a
corporation (or other entity taxable as a corporation) created or organized under the laws of the United States, any state thereof, or
the District of Columbia; |
| ● | an
estate, the income of which is subject to U.S. federal income tax regardless of its source; or; |
| ● | a
trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons”
(within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect to be treated as a “United States
person” (within the meaning of Section 7701(a)(30) of the Code) for U.S. federal income tax purposes. |
If
an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds ordinary shares and/or warrants, the tax
treatment of an owner of such entity will depend on the status of the owners, the activities of the entity or arrangement and certain
determinations made at the owner level. Accordingly, entities or arrangements treated as partnerships for U.S. federal income tax purposes
and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
THE
U.S. FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO HOLDERS OF ORDINARY SHARES AND WARRANTS WILL DEPEND ON EACH HOLDER’S PARTICULAR
TAX CIRCUMSTANCES. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, AND LOCAL, AND NON-U.S. INCOME AND OTHER
TAX CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR INVESTMENT OR TAX CIRCUMSTANCES, OF ACQUIRING, HOLDING, AND DISPOSING OF ORDINARY
SHARES AND WARRANTS.
Distributions
on Ordinary Shares
Subject to the discussion below under “-Passive Foreign Investment
Company Rules,” if
Alpha Tau makes distributions of cash or property on the ordinary shares, the gross amount of such distributions (including any amount
of foreign taxes withheld) will be treated for U.S. federal income tax purposes first as a dividend to the extent of Alpha Tau’s
current and accumulated earnings and profits (as determined for U.S. federal income tax purposes), and then as a tax-free return of capital
to the extent of the U.S. Holder’s tax basis, with any excess treated as capital gain from the sale or exchange of the shares.
If Alpha Tau does not provide calculations of its earnings and profits under U.S. federal income tax principles, a U.S. Holder should
expect all cash distributions to be reported as dividends for U.S. federal income tax purposes. Any dividend will not be eligible for
the dividends received deduction allowed to corporations in respect of dividends received from U.S. corporations.
Subject
to the discussions below under “-Passive Foreign Investment Company Rules,” dividends received by certain non-corporate
U.S. Holders (including individuals) may be “qualified dividend income,” which is taxed at the lower applicable capital gains
rate, provided that:
| ● | either
(a) the shares are readily tradable on an established securities market in the United States, or (b) Alpha Tau is eligible for the
benefits of a qualifying income tax treaty with the United States that includes an exchange of information program; |
| ● | Alpha
Tau is neither a PFIC (as discussed below under below under “-Passive Foreign Investment Company Rules”) nor treated
as such with respect to the U.S. Holder for Alpha Tau’s in any taxable year in which the dividend is paid or the preceding taxable
year; |
| ● | the
U.S. Holder satisfies certain holding period requirements; and |
| ● | the
U.S. Holder is not under an obligation to make related payments with respect to positions in substantially similar or related property. |
There
can be no assurances that Alpha Tau will be eligible for benefits of an applicable comprehensive income tax treaty between the
United States and Israel (the “Treaty”). In addition, there also can be no assurance that ordinary shares will be considered “readily
tradable” on an established securities market in the United States in accordance with applicable legal authorities.
Furthermore, Alpha Tau will not constitute a “qualified foreign corporation” for purposes of these rules if it is a PFIC
for the taxable year in which it pays a dividend or for the preceding taxable year. See “-Passive Foreign Investment
Company Rules.” U.S. Holders should consult their own tax advisors regarding the availability of the lower rate for
dividends paid with respect to ordinary shares.
Subject
to certain exceptions, dividends on ordinary shares will constitute foreign source income for foreign tax credit limitation
purposes. Subject to certain complex conditions and limitations, Israeli taxes withheld on any distributions on the ordinary shares
may be eligible for credit against a U.S. Holder’s federal income tax liability or, at such holder’s election, may be
eligible for a deduction in computing such holder’s U.S. federal income tax income. Certain U.S. Treasury Regulations that
apply to non-U.S. taxes paid or accrued in taxable years beginning on or after December 28, 2021 restrict the availability of any
such credit based on the nature of the tax imposed by the non-U.S. jurisdiction. U.S. Holders are urged to consult their tax
advisors regarding the creditability of any such tax imposed by Israel. If a refund of the tax withheld is available under the laws
of Israel or under the Treaty, the amount of tax withheld that is refundable will not be eligible for such credit against a U.S.
Holder’s U.S. federal income tax liability (and will not be eligible for the deduction against U.S. federal taxable income).
If such dividends are qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of
calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by a fraction, the
numerator of which is the reduced rate applicable to qualified dividend income and the denominator of which is the highest rate of
tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to
specific classes of income. For this purpose, dividends distributed by Alpha Tau with respect to the ordinary shares generally will
constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category
income.” The rules relating to the determination of the U.S. foreign tax credit are complex, and U.S. Holders should consult
their tax advisors regarding the availability of a foreign tax credit in their particular circumstances and the possibility of claiming
an itemized deduction (in lieu of the foreign tax credit) for any foreign taxes paid or withheld.
Sale,
Exchange, Redemption or Other Taxable Disposition of Ordinary Shares and Warrants
Subject
to the discussion below under “-Passive Foreign Investment Company Rules,” a U.S. Holder generally will recognize
gain or loss on any sale, exchange, redemption or other taxable disposition of ordinary shares or warrants in an amount equal to the
difference between (i) the amount realized on the disposition and (ii) such U.S. Holder’s adjusted tax basis in such
ordinary shares and/or warrants. A U.S. Holder’s initial tax basis in ordinary shares or warrants purchased in the market
generally will equal the cost of such ordinary shares or warrants, as applicable. Any gain or loss recognized by a U.S. Holder on a
taxable disposition of ordinary shares or warrants generally will be capital gain or loss. A non-corporate U.S. Holder, including an
individual, who has held the ordinary shares and/or warrants for more than one year generally will be eligible for reduced tax rates
for such long-term capital gains. The deductibility of capital losses is subject to limitations.
Any
such gain or loss recognized generally will be treated as U.S. source gain or loss. Accordingly, in the event any Israeli tax (including
withholding tax) is imposed upon such sale or other disposition, a U.S. Holder may not be able to utilize foreign tax credits unless
such U.S. Holder has foreign source income or gain in the same category from other sources. Moreover, there are special rules under the Treaty, which may impact a U.S. Holder’s ability to
claim a foreign tax credit. U.S. Holders are urged to consult their own tax advisor regarding the ability to claim a foreign tax credit
and the application of the Treaty to such U.S. Holder’s particular circumstances.
Exercise
or Lapse of a Warrant
Except
as discussed below with respect to the cashless exercise of a warrant, a U.S. Holder generally will not recognize gain or loss upon the
acquisition of an ordinary share on the exercise of a warrant for cash. A U.S. Holder’s tax basis in ordinary shares received upon
exercise of the warrant generally should be an amount equal to the sum of the U.S. Holder’s tax basis in the warrant received therefore
and the exercise price. The U.S. Holder’s holding period for an ordinary share received upon exercise of the warrant will begin
on the date following the date of exercise (or possibly the date of exercise) of the warrant and will not include the period during which
the U.S. Holder held the warrant. If a warrant is allowed to lapse unexercised, a U.S. Holder that has otherwise received no proceeds
with respect to such warrant generally will recognize a capital loss equal to such U.S. Holder’s tax basis in the warrant.
The
tax consequences of a cashless exercise of a warrant are not clear under current U.S. federal income tax law. A cashless exercise may
be tax-deferred, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for
U.S. federal income tax purposes. In either situation, a U.S. Holder’s basis in the ordinary shares received would equal the U.S.
Holder’s basis in the warrants exercised therefore. If the cashless exercise is not treated as a realization event, a U.S. Holder’s
holding period in the ordinary shares would be treated as commencing on the date following the date of exercise (or possibly the date
of exercise) of the warrants. If the cashless exercise were treated as a recapitalization, the holding period of the ordinary shares
would include the holding period of the warrants exercised therefore.
It
is also possible that a cashless exercise of a warrant could be treated in part as a taxable exchange in which gain or loss would be
recognized in the manner set forth above under “-Sale, Exchange, Redemption or Other Taxable Disposition of Ordinary Shares
and Warrants.” In such event, a U.S. Holder could be deemed to have surrendered warrants equal to the number of ordinary shares
having an aggregate fair market value equal to the exercise price for the total number of warrants to be exercised. The U.S. Holder would
recognize capital gain or loss in an amount generally equal to the difference between (i) the fair market value of the warrants deemed
surrendered and (ii) the U.S. Holder’s tax basis in such warrants deemed surrendered. In this case, a U.S. Holder’s tax basis
in the ordinary shares received would equal the sum of (i) U.S. Holder’s tax basis in the warrants deemed exercised and (ii) the
exercise price of such warrants. A U.S. Holder’s holding period for the ordinary shares received in such case generally would commence
on the date following the date of exercise (or possibly the date of exercise) of the warrants.
Due
to the absence of authority on the U.S. federal income tax treatment of a cashless exercise of warrants, there can be no assurance which,
if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly,
U.S. Holders should consult their own tax advisors regarding the tax consequences of a cashless exercise of warrants.
Possible
Constructive Distributions
The
terms of each warrant provide for an adjustment to the number of ordinary shares for which the warrant may be exercised or to the exercise
price of the warrant in certain events. An adjustment which has the effect of preventing dilution generally is not taxable. A U.S. Holder
of a warrant would, however, be treated as receiving a constructive distribution from Alpha Tau if, for example, the adjustment increases
the holder’s proportionate interest in Alpha Tau’s assets or earnings and profits (for instance, through an increase in the
number of ordinary shares that would be obtained upon exercise of such warrant) as a result of a distribution of cash or other property
such as other securities to the holders of the ordinary shares which is taxable to the holders of such shares as described under “-Distributions
on Ordinary Shares” above. Such constructive distribution would be subject to tax as described under that section in the same
manner as if the U.S. Holder of such warrant received a cash distribution from Alpha Tau equal to the fair market value of such increased
interest.
Passive
Foreign Investment Company Rules
The
treatment of U.S. Holders of the ordinary shares could be materially different from that described above, if Alpha Tau is treated as
a PFIC for U.S. federal income tax purposes. A non-U.S. entity treated as a corporation for U.S. federal income tax purposes generally
will be a PFIC for U.S. federal income tax purposes for any taxable year if either:
| ● | at
least 75% of its gross income for such year is passive income; or |
| ● | at
least 50% of the value of its assets (generally based on an average of the quarterly values of the assets) during such year is attributable
to assets that produce passive income or are held for the production of passive income. |
For
this purpose, Alpha Tau will be treated as owning its proportionate share of the assets and earning its proportionate share of the income
of any other entity treated as a corporation for U.S. federal income tax purposes in which Alpha Tau owns, directly or indirectly, 25%
or more (by value) of the stock.
Alpha
Tau believes it was not a PFIC in 2022. Based on the current and anticipated composition of the income, assets and operations of
Alpha Tau and its subsidiaries, there is a risk Alpha Tau may be treated as a PFIC for future taxable years. However, there can be
no assurances in this regard, nor can there be any assurances that Alpha Tau will not be treated as a PFIC in any future taxable
year. Moreover, the application of the PFIC rules is subject to uncertainty in several respects, and Alpha Tau can make no
assurances that the IRS will not take a contrary position or that a court will not sustain such a challenge by the IRS.
Whether
Alpha Tau or any of its subsidiaries is treated as a PFIC is determined on an annual basis. The determination of whether Alpha Tau or
any of its subsidiaries is a PFIC is a factual determination that depends on, among other things, the composition of Alpha Tau’s
income and assets, and the market value of its and its subsidiaries’ shares and assets. Changes in the composition of Alpha Tau’s
or any of its subsidiaries’ income or composition of Alpha Tau’s or any of its subsidiaries’ assets may cause it to
be or become a PFIC for the current or subsequent taxable years. Under the PFIC rules, if Alpha Tau were considered a PFIC at any time
that a U.S. Holder owns ordinary shares or warrants, Alpha Tau would continue to be treated as a PFIC with respect to such investment
unless (i) it ceased to be a PFIC and (ii) the U.S. Holder made a “deemed sale” election under the PFIC rules. If such election
is made, a U.S. Holder will be deemed to have sold its ordinary shares or warrants at their fair market value on the last day of the
last taxable year in which Alpha Tau is classified as a PFIC, and any gain from such deemed sale would be subject to the consequences
described below. After the deemed sale election, the ordinary shares or warrants with respect to which the deemed sale election was made
will not be treated as shares in a PFIC unless Alpha Tau subsequently becomes a PFIC.
For
each taxable year that Alpha Tau is treated as a PFIC with respect to a U.S. Holder’s ordinary shares or warrants, the U.S. Holder
will be subject to special tax rules with respect to any “excess distribution” (as defined below) received and any gain realized
from a sale or disposition (including a pledge) of its ordinary shares (collectively the “Excess Distribution Rules”), unless
the U.S. Holder makes a valid QEF election or mark-to-market election as discussed below. Distributions received by a U.S. Holder in
a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable
years or the U.S. Holder’s holding period for the ordinary shares will be treated as excess distributions. Under these special
tax rules:
| ● | the
excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ordinary shares; |
| ● | the
amount allocated to the current taxable year, and any taxable years in the U.S. Holder’s holding period prior to the first taxable
year in which Alpha Tau is a PFIC, will be treated as ordinary income; and |
| ● | the
amount allocated to each other taxable year will be subject to the highest tax rate in effect for individuals or corporations, as applicable,
for each such year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable
to each such year. |
Under
the Excess Distribution Rules, the tax liability for amounts allocated to taxable years prior to the year of disposition or excess distribution
cannot be offset by any net operating losses, and gains (but not losses) realized on the sale of the ordinary shares or warrants cannot
be treated as capital gains, even though the U.S. Holder holds the ordinary shares or warrants as capital assets.
Certain
of the PFIC rules may impact U.S. Holders with respect to equity interests in subsidiaries and other entities which Alpha Tau may hold,
directly or indirectly, that are PFICs (collectively, “Lower-Tier PFICs”). There can be no assurance, however, that Alpha
Tau does not own, or will not in the future acquire, an interest in a subsidiary or other entity that is or would be treated as a Lower-Tier
PFIC. U.S. Holders should consult their own tax advisors regarding the application of the PFIC rules to any of Alpha Tau’s subsidiaries.
If
Alpha Tau is a PFIC, a U.S. Holder of ordinary shares (but not warrants) may avoid taxation under the Excess Distribution Rules described
above by making a “qualified electing fund” (“QEF”) election. However, a U.S. Holder may make a QEF election
with respect to its ordinary shares only if Alpha Tau provides U.S. Holders on an annual basis with certain financial information specified
under applicable U.S. Treasury regulations. Alpha Tau will endeavor to provide U.S. Holders with the required information on an annual
basis to allow U.S. Holders to make a QEF election with respect to the ordinary shares in the event Alpha Tau is treated as a PFIC for
any taxable year. There can be no assurance, however, that Alpha Tau will timely provide such information for the current year or subsequent
years. The failure to provide such information on an annual basis could prevent a U.S. Holder from making a QEF election or result in
the invalidation or termination of a U.S. Holder’s prior QEF election. In addition, U.S. Holders of warrants will not be able to
make a QEF election with respect to their warrants.
In
the event Alpha Tau is a PFIC, a U.S. Holder that makes a QEF election with respect to its ordinary shares would generally be required
to include in income for each year that Alpha Tau is treated as a PFIC the U.S. Holder’s pro rata share of Alpha Tau’s ordinary
earnings for the year (which would be subject to tax as ordinary income) and net capital gains for the year (which would be subject to
tax at the rates applicable to long-term capital gains), without regard to the amount of any distributions made in respect of the ordinary
shares. Any net deficits or net capital losses of Alpha Tau for a taxable year would not be passed through and included on the tax return
of the U.S. Holder, however. A U.S. Holder’s basis in the ordinary shares would be increased by the amount of income inclusions
under the qualified electing fund rules. Dividends actually paid on the ordinary shares generally would not be subject to U.S. federal
income tax to the extent of prior income inclusions and would reduce the U.S. Holder’s basis in the ordinary shares by a corresponding
amount.
If
Alpha Tau owns any interests in a Lower-Tier PFIC, a U.S. Holder generally must make a separate QEF election for each Lower-Tier PFIC,
subject to Alpha Tau’s providing the relevant tax information for each Lower-Tier PFIC on an annual basis.
If
a U.S. Holder does not make a QEF election (or a mark-to-market election, as discussed below) effective from the first taxable year of
a U.S. Holder’s holding period for the ordinary shares in which Alpha Tau is a PFIC, then the ordinary shares will generally continue
to be treated as an interest in a PFIC, and the U.S. Holder generally will remain subject to the Excess Distribution Rules. A U.S. Holder
that first makes a QEF election in a later year may avoid the continued application of the Excess Distribution Rules to its ordinary
shares by making a “deemed sale” election. In that case, the U.S. Holder will be deemed to have sold the ordinary shares
at their fair market value on the first day of the taxable year in which the QEF election becomes effective, and any gain from such deemed
sale would be subject to the Excess Distribution Rules described above. A U.S. Holder that is eligible to make a QEF election with respect
to its ordinary shares generally may do so by providing the appropriate information to the IRS in the U.S. Holder’s timely filed
tax return for the year in which the election becomes effective.
U.S.
Holders should consult their own tax advisors as to the availability and desirability of a QEF election.
Alternatively,
a U.S. Holder of “marketable stock” (as defined below) may make a mark-to-market election for its ordinary shares to elect
out of the Excess Distribution Rules discussed above if Alpha Tau is treated as a PFIC. If a U.S. Holder makes a mark-to-market election
with respect to its ordinary shares, such U.S. Holder will include in income for each year that Alpha Tau is treated as a PFIC with respect
to such ordinary shares an amount equal to the excess, if any, of the fair market value of the ordinary shares as of the close of the
U.S. Holder’s taxable year over the adjusted basis in the ordinary shares. A U.S. Holder will be allowed a deduction for the excess,
if any, of the adjusted basis of the ordinary shares over their fair market value as of the close of the taxable year. However, deductions
will be allowed only to the extent of any net mark-to-market gains on the ordinary shares included in the U.S. Holder’s income
for prior taxable years. Amounts included in income under a mark-to-market election, as well as gain on the actual sale or other disposition
of the ordinary shares, will be treated as ordinary income. Ordinary loss treatment will also apply to the deductible portion of any
mark-to-market loss on the ordinary shares, as well as to any loss realized on the actual sale or disposition of the ordinary shares,
to the extent the amount of such loss does not exceed the net mark-to-market gains for such ordinary shares previously included in income.
A U.S. Holder’s basis in the ordinary shares will be adjusted to reflect any mark-to-market income or loss. If a U.S. Holder makes
a mark-to-market election, any distributions Alpha Tau makes would generally be subject to the rules discussed above under “-Distributions
on Ordinary Shares,” except the lower rates applicable to qualified dividend income would not apply. U.S. Holders of warrants
will not be able to make a mark-to-market election with respect to their warrants.
The
mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded on a qualified
exchange or other market, as defined in applicable U.S. Treasury regulations. The ordinary shares, which are currently listed on Nasdaq,
are expected to qualify as marketable stock for purposes of the PFIC rules, but there can be no assurance that ordinary shares will be
“regularly traded” for purposes of these rules. Because a mark-to-market election cannot be made for equity interests in
any Lower-Tier PFICs, a U.S. Holder that does not make the applicable QEF elections generally will continue to be subject to the Excess
Distribution Rules with respect to its indirect interest in any Lower-Tier PFICs as described above, even if a mark-to-market election
is made for Alpha Tau.
If
a U.S. Holder does not make a mark-to-market election (or a QEF election, as discussed above) effective from the first taxable year of
a U.S. Holder’s holding period for the ordinary shares in which Alpha Tau is a PFIC, then the U.S. Holder generally will remain
subject to the Excess Distribution Rules. A U.S. Holder that first makes a mark-to-market election with respect to the ordinary shares
in a later year will continue to be subject to the Excess Distribution Rules during the taxable year for which the mark-to-market election
becomes effective, including with respect to any mark-to-market gain recognized at the end of that year. In subsequent years for which
a valid mark-to-mark election remains in effect, the Excess Distribution Rules generally will not apply. A U.S. Holder that is eligible
to make a mark-to-market with respect to its ordinary shares may do so by providing the appropriate information on IRS Form 8621 and
timely filing that form with the U.S. Holder’s tax return for the year in which the election becomes effective. U.S. Holders should
consult their own tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election
on interests in any Lower-Tier PFICs.
A
U.S. Holder of a PFIC may be required to file an IRS Form 8621 on an annual basis. U.S. Holders should consult their own tax advisors
regarding any reporting requirements that may apply to them if Alpha Tau is a PFIC.
U.S.
Holders are strongly encouraged to consult their tax advisors regarding the application of the PFIC rules to their particular circumstances.
Information
Reporting and Backup Withholding
Information
reporting requirements may apply to distributions received by U.S. Holders of ordinary shares, and the proceeds received on sale or
other taxable the disposition of ordinary shares or warrants effected within the United States (and, in certain cases, outside the
United States), in each case other than U.S. Holders that are exempt recipients (such as corporations). Backup withholding
(currently at a rate of 24%) may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification
number (generally on an IRS Form W-9 provided to the paying agent of the U.S. Holder’s broker) or is otherwise subject to
backup withholding. U.S. Holders should consult their own tax advisors regarding the application of the U.S. information reporting
and backup withholding rules.
Backup
withholding is not an additional tax. Amounts withheld as backup withholding generally may be credited against the taxpayer’s U.S.
federal income tax liability, and a taxpayer may obtain a refund of any excess amounts withheld under the backup withholding rules by
timely filing the appropriate claim for a refund with the IRS and furnishing any required information.
Foreign Asset Reporting
Certain U.S. Holders are required to report their
holdings of certain foreign financial assets, including equity of foreign entities, if the aggregate value of all of these assets exceeds
certain threshold amounts, by filing IRS Form 8938 with their federal income tax return. The ordinary shares and warrants are expected
to constitute foreign financial assets subject to these requirements unless they are held in an account at certain financial institutions.
U.S. Holders are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their
ownership and disposition of the ordinary shares and/or warrants and the significant penalties for non-compliance.
CERTAIN
MATERIAL ISRAELI TAX CONSIDERATIONS
The
following description is not intended to constitute a complete analysis of all tax consequences relating to the acquisition, ownership,
and disposition of the ordinary shares. You should consult your own tax advisor concerning the tax consequences of your particular situation,
as well as any tax consequences that may arise under the laws of any state, local, foreign or other taxing jurisdiction.
Israeli
tax considerations
The
following is a brief summary of certain material Israeli tax laws applicable to Alpha Tau, and certain Israeli Government programs that
benefit Alpha Tau. This section also contains a discussion of certain material Israeli tax consequences concerning the ownership and
disposition of ordinary shares purchased by investors. This summary does not discuss all the aspects of Israeli tax law that may be relevant
to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment
under Israeli law. Examples of such investors include residents of Israel or traders in securities who are subject to special tax regimes
not covered in this discussion. To the extent that the discussion is based on tax legislation that has not yet been subject to judicial
or administrative interpretation, Alpha Tau cannot assure you that the appropriate tax authorities or the courts will accept the views
expressed in this discussion. The discussion below is not intended, and should not be construed, as legal or professional tax advice
and is not exhaustive of all possible tax considerations. The discussion is subject to change, including due to amendments under Israeli
law or changes to the applicable judicial or administrative interpretations of Israeli law, which change could affect the tax consequences
described below, possibly with a retroactive effect.
THEREFORE,
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS AS TO THE ISRAELI OR OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF OUR ORDINARY SHARES, INCLUDING, IN PARTICULAR, THE EFFECT OF ANY FOREIGN, STATE OR LOCAL TAXES.
General
corporate tax structure in Israel
Israeli
companies are generally subject to corporate tax. In December 2016, the Israeli Parliament approved the Economic Efficiency Law (Legislative
Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years) which reduced the corporate income tax rate from 25%
to 24% effective from January 1, 2017, and to 23% effective from January 1, 2018 and thereafter. However, the effective tax rate payable
by a company that derives income from a Preferred Enterprise, or a Technological Enterprise (each, as defined herein) may be considerably
less. Capital gains derived by an Israeli company are generally subject to the prevailing regular corporate tax rate.
Law
for the Encouragement of Industry (Taxes), 5729-1969
The
Law for the Encouragement of Industry (Taxes), 5729-1969, generally referred to as the “Industry Encouragement Law”, provides
several tax benefits for “Industrial Companies.” Alpha Tau may qualify as an Industrial Company within the meaning of the
Industry Encouragement Law.
The
Industry Encouragement Law defines an “Industrial Company” as an Israeli resident-company, incorporated in Israel, of which
90% or more of its income in any tax year, other than income from certain government loans, capital gains, interest and dividends, is
derived from an “Industrial Enterprise” owned by it and located in Israel or in the “Area,” in accordance with
the definition under section 3A of the Israeli Income Tax Ordinance (New Version) 1961 (the “Ordinance”). An “Industrial
Enterprise” is defined as an enterprise which is held by an Industrial Company whose principal activity in a given tax year is
industrial production.
The
following are the main tax benefits available to Industrial Companies:
| ● | Amortization
of the cost of purchased patent, rights to use a patent, and know-how that were purchased in good faith, which are used for the development
or advancement of the Industrial Enterprise, over an eight-year period, commencing on the year in which such rights were first exercised; |
| ● | Under
limited conditions, an election to file consolidated tax returns with controlled Israeli Industrial Companies; |
| ● | Expenses
related to a public offering are deductible in equal amounts over three years commencing on the year of the offering. |
Eligibility
for benefits under the Industry Encouragement Law is not contingent upon approval of any governmental authority.
Tax
benefits and grants for research and development
Israeli
tax law allows, under certain conditions, a tax deduction for expenditures, including capital expenditures, for the year in which they
are incurred. Expenditures are deemed related to scientific research and development projects, if:
| ● | The
expenditures are approved by the relevant Israeli government ministry, determined by the field of research; |
| ● | The
research and development must be for the promotion of the company; and |
| ● | The
research and development is carried out by or on behalf of the company seeking such tax deduction. |
The
amount of such deductible expenses is reduced by the sum of any funds received through government grants for the finance of such scientific
research and development projects. No deduction under these research and development deduction rules is allowed if such deduction is
related to an expense invested in an asset depreciable under the general depreciation rules of the Ordinance. Expenditures that are unqualified
under the conditions above are deductible in equal amounts over three years.
From
time to time we may apply to the Israel Innovation Authority for approval to allow a tax deduction for all or most of the research and
development expenses during the year in which they were incurred. There can be no assurance that such application will be accepted. If
we are not able to deduct research and development expenses during the year in which they are paid, we may be able to deduct research
and development expenses in equal amounts over a period of three years commencing the year in which the payment of such expenses was
made.
Law
for the Encouragement of Capital Investments, 5719-1959
The
Law for the Encouragement of Capital Investments, 5719-1959, generally referred to as the “Investment Law”, provides certain
incentives for capital investments in production facilities (or other eligible assets). Generally, an investment program that is implemented
in accordance with the provisions of the Investment Law, referred to as , a Preferred Enterprise, a Special Preferred Enterprise, a Preferred
Technological Enterprise, or a Special Preferred Technological Enterprise, is entitled to the benefits discussed below. These benefits
may include cash grants from the Israeli government and tax benefits, based upon, among other things, the geographic location in Israel
of the facility in which the investment is made. In order to qualify for these incentives, the Company is required to comply with the
requirements of the Investment Law.
The
Investment Law was significantly amended effective as of April 1, 2005 (the “2005 Amendment”), as of January 1, 2011 (the
“2011 Amendment”) and as of January 1, 2017 (the “2017 Amendment”). Pursuant to the 2005 Amendment, tax benefits
granted in accordance with the provisions of the Investment Law prior to its revision by the 2005 Amendment remain in force but any benefits
granted subsequently are subject to the provisions of the amended Investment Law. Similarly, the 2011 Amendment introduced new benefits
to replace those granted in accordance with the provisions of the Investment Law in effect prior to the 2011 Amendment. However, companies
entitled to benefits under the Investment Law as in effect prior to January 1, 2011 were entitled to choose to continue to enjoy such
benefits, provided that certain conditions are met, or elect instead, irrevocably, to forego such benefits and have the benefits of the
2011 Amendment apply. The 2017 Amendment introduces new benefits for Technological Enterprises, alongside the existing tax benefits.
Tax
benefits under the 2011 Amendment
The
2011 Amendment canceled the availability of the benefits granted to Industrial Companies under the Investment Law prior to 2011 and,
instead, introduced new benefits for income generated by a “Preferred Company” through its “Preferred Enterprise”
(as such terms are defined in the Investment Law) as of January 1, 2011. The definition of a Preferred Company includes a company incorporated
in Israel that is not fully owned by a governmental entity, and that has, among other things, Preferred Enterprise status and is controlled
and managed from Israel. Pursuant to the 2011 Amendment, a Preferred Company is entitled to a reduced corporate tax rate of 15% with
respect to its income derived by its Preferred Enterprise in 2011 and 2012, unless the Preferred Enterprise is located in a specified
development zone, in which case the rate will be 10%. Under the 2011 Amendment, such corporate tax rate was reduced from 15% and 10%,
respectively, to 12.5% and 7%, respectively, in 2013, and was increased to 16% and 9% respectively, in 2014, 2015 and 2016. Pursuant
to the 2017 Amendment, in 2017 and thereafter, the corporate tax rate for a Preferred Enterprise remained 16% while the reduced rate
for a specified development zone was decreased to and 7.5%. Income derived by a Preferred Company from a “Special Preferred Enterprise”
(as such term is defined in the Investment Law) would be entitled, subject to certain conditions and during a benefits period of 10 years,
to further reduced tax rates of 8%, or 5% if the Special Preferred Enterprise is located in a certain development zone. Since January
1, 2017, the definition for “Special Preferred Enterprise” includes less stringent conditions.
Dividends
distributed from income which is attributed to a “Preferred Enterprise” will be subject to withholding tax at source at the
following rates: (i) Israeli resident corporations-0% (although, if such dividends are subsequently distributed to individuals or a non-Israeli
company the below rates detailed in sub sections (ii) and (iii) shall apply) (ii) Israeli resident individuals-20% (iii) non-Israeli
residents (individuals and corporations), subject to the receipt in advance of a valid certificate from the Israel Tax Authority (“ITA”)
allowing for a reduced tax rate-20%, or a reduced tax rate under the provisions of any applicable double tax treaty.
We
currently do not intend to implement the 2011 Amendment.
New
tax benefits under the 2017 Amendment that became effective on January 1, 2017
The
2017 Amendment was enacted as part of the Economic Efficiency Law that was published on December 29, 2016 and is effective as of January
1, 2017. The 2017 Amendment provides new tax benefits for two types of “Technological Enterprises,” as described below, and
is in addition to the other existing tax beneficial programs under the Investment Law.
The
2017 Amendment provides that a Preferred Company satisfying certain conditions will qualify as having a “Preferred Technological
Enterprise” and will thereby enjoy a reduced corporate tax rate of 12% on income that qualifies as “Preferred Technological
Income,” as defined in the Investment Law. The corporate tax rate is further reduced to 7.5% with respect to a Preferred Technological
Enterprise located in development zone “A.” In addition, a Preferred Technological Company will enjoy a reduced corporate
tax rate of 12% on capital gain derived from the sale of certain “Benefitted Intangible Assets” (as defined in the Investment
Law) to a related foreign company if the Benefitted Intangible Assets were acquired from a foreign company after January 1, 2017 for
at least NIS 200 million, and the sale receives prior approval from the Israel Innovation Authority.
The
2017 Amendment further provides that a Preferred Company satisfying certain conditions (including group consolidated revenues of at least
NIS 10 billion) will qualify as a “Special Preferred Technological Enterprise” and will thereby enjoy a reduced corporate
tax rate of 6% on “Preferred Technological Income” regardless of the company’s geographic location within Israel. In
addition, a Special Preferred Technological Enterprise will enjoy a reduced corporate tax rate of 6% on capital gain derived from the
sale of certain “Benefitted Intangible Assets” to a related foreign company if the Benefitted Intangible Assets were either
developed by the Special Preferred Enterprise or acquired from a foreign company after January 1, 2017, and the sale received prior approval
from the Israel Innovation Authority. A Special Preferred Technological Enterprise that acquires Benefitted Intangible Assets from a
foreign company for more than NIS 500 million will be eligible for these benefits for at least ten years, subject to certain approvals
as specified in the Investment Law.
Dividends
distributed by a Preferred Technological Enterprise or a Special Preferred Technological Enterprise, paid out of Preferred Technological
Income, are generally subject to withholding tax at source at the rate of 20% (in case of non-Israeli shareholders —subject to
the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate, 20% or such lower rate as may be provided
in an applicable tax treaty).However, if such dividends are paid to an Israeli company, no tax is required to be withheld (although,
if such dividends are subsequently distributed to individuals or a non-Israeli company, the aforesaid will apply. If such dividends
are distributed to a foreign company that holds solely or together with other foreign companies 90% or more in the Israeli company and
other conditions are met, the withholding tax rate will be 4% (subject to the receipt in advance of a valid certificate from the Israel
Tax Authority allowing for a reduced tax rate)..
On
January 15, 2020, Alpha Tau received a Tax Ruling from the Israel Tax Authority regarding its entitlement to tax benefits as a Preferred
Technological Enterprise subject to the compliance with the conditions settled in such Tax Ruling and in the Encouragement Law. The Tax
Ruling is valid from 2020 until tax year 2024 (inclusive).
Taxation
of our shareholders
Capital
Gains Tax on Sales of our Ordinary Shares
Israeli
law generally imposes a capital gains tax on the sale of any capital assets by Israeli residents, as defined for Israeli tax purposes,
and on the sale of capital assets located in Israel, including shares of Israeli companies, by both Israeli residents and non-Israeli
residents, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence
provides otherwise. The Ordinance distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of
the total capital gain equivalent to the increase of the relevant asset’s purchase price attributable to an increase in the Israeli
consumer price index, or a foreign currency exchange rate, between the date of purchase and the date of sale. Inflationary surplus is
currently not subject to tax in Israel. The real gain is the excess of the total capital gain over the inflationary surplus.
Capital
gains taxes applicable to non-Israeli resident shareholders.
A
non-Israeli resident who derives capital gains from the sale of shares in an Israeli resident company that were purchased after the company
was listed for trading on a stock exchange outside of Israel, will be exempt from Israeli tax if, among other conditions, the shares
were not held through a fixed enterprise that the non-resident maintains in Israel. However, non-Israeli corporations will not be entitled
to the foregoing exemption if Israeli residents: (i) have a controlling interest more than 25% in such non-Israeli corporation or (ii)
are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli corporation, whether directly
or indirectly. In addition, such exemption is not applicable to a person whose gains from selling or otherwise disposing of the shares
are deemed to be business income.
If
not exempt, a non-Israeli resident shareholder would generally be subject to tax on capital gain at the ordinary corporate
tax rate (23% in 2022) if generated by a company, or at the rate of 25%, if generated by an individual, or 30%, if generated by an individual
who is a “substantial shareholder (as defined under the Ordinance), at the time of sale or at any time during the preceding 12-month period
(or if the shareholder claims a deduction for interest and linkage differences expenses in connection with the purchase and holding of
such shares). A “substantial shareholder” is generally a person who alone or together with such person’s relative or
another person who collaborates with such person on a permanent basis, holds, directly or indirectly, at least 10% of any of the “means
of control” of the corporation. “Means of control” generally include, among others, the right to vote, receive profits,
nominate a director or an executive officer, receive assets upon liquidation, or order someone who holds any of the aforesaid rights
how to act, regardless of the source of such right. Individual and corporate shareholders dealing in securities in Israel are taxed at
the tax rates applicable to business income (a corporate tax rate for a corporation (23% in 2022) and a marginal tax rate of up to 47%
for an individual in 2022), unless contrary provisions in a relevant tax treaty apply.
Additionally,
a sale of securities by a non-Israeli resident may be exempt from Israeli capital gains tax under the provisions of an applicable tax
treaty. For example, under the Convention Between the Government of the United States of America and the Government of the State of Israel
with Respect to Taxes on Income, as amended (the “United States-Israel Tax Treaty”), the sale, exchange or other disposition
of shares by a shareholder who is a United States resident (for purposes of the treaty) holding the shares as a capital asset and is
entitled to claim the benefits afforded to such a resident by the United States-Israel Tax Treaty (a “U.S. Resident”) is
generally exempt from Israeli capital gains tax unless: (i) the capital gain arising from such sale, exchange or disposition is attributed
to real estate located in Israel; (ii) the capital gain arising from such sale, exchange or disposition is attributed to royalties; (iii)
the capital gain arising from the such sale, exchange or disposition is attributed to a permanent establishment in Israel, under certain
terms; (iv) such U.S. Resident holds, directly or indirectly, shares representing 10% or more of the voting capital during any part of
the 12 month period preceding the disposition, subject to certain conditions; or (v) such U.S. Resident is an individual and was present
in Israel for 183 days or more during the relevant taxable year. In any such case, the sale, exchange or disposition of such shares by
the U.S. Resident would be subject to Israeli tax (unless exempt under the Israeli domestic law as described above). Under the United
States-Israel Tax Treaty, the gain may be treated as foreign source income for United States foreign tax credit purposes, upon an election
by the U.S. Resident, and such U.S. Resident may be permitted to claim a credit for such taxes against the United States federal income
tax imposed on such sale, subject to the limitations under the United States federal income tax laws applicable to foreign tax credits.
The United States Israel Tax Treaty does not provide such credit against any United States state or local taxes.
Regardless
of whether shareholders may be liable for Israeli tax on the sale of our ordinary shares, the payment of the consideration may be subject
to the withholding of Israeli tax at source. Shareholders may be required to demonstrate that they are exempt from tax on their capital
gains in order to avoid withholding at source at the time of sale (i.e., provide resident certificate and other documentation). Specifically,
in transactions involving a sale of all of the shares of an Israeli resident company, in the form of a merger or otherwise, the ITA may
require from shareholders who are not liable for Israeli tax to sign declarations in forms specified by this authority or obtain a specific
exemption from the ITA to confirm their status as non-Israeli tax residents, and, in the absence of such declarations or exemptions,
may require the purchaser of the shares to withhold taxes at source.
Capital
gains taxes applicable to Israeli resident shareholders.
An
Israeli resident corporation who derives capital gains from the sale of shares in an Israeli resident company that were purchased after
the company was listed for trading on a stock exchange outside of Israel will generally be subject to tax on the real capital gains generated
on such sale at the corporate tax rate 23% in 2022). An Israeli resident individual will generally be subject to capital gain tax at
the rate of 25%. However, if the individual shareholder is claiming deduction of interest expenditures or he is a “substantial
shareholder” (as explained above) at the time of the sale or at any time during the preceding twelve months period, such gain will
be taxed at the rate of 30%. Individual holders dealing in securities in Israel for whom the income from the sale of securities is considered
“business income” as defined in section 2(1) of the Ordinance are taxed at the marginal tax rates applicable to business
income (up to 47% in 2022). Certain Israeli institutions who are exempt from tax under section 9(2) or section 129(C)(a)(1) of the Ordinance
(such as exempt trust funds and pension funds) may be exempt from capital gains tax from the sale of the shares.
Taxation
of Israeli shareholders on receipt of dividends.
An
Israeli resident individual is generally subject to Israeli income tax on the receipt of dividends paid on our ordinary shares at the
rate of 25%. With respect to a person who is a “substantial shareholder” (as explained above) at the time of receiving the
dividend or on any time during the preceding twelve months, the applicable tax rate is 30%. Such dividends are generally subject to Israeli
withholding tax at a rate of 25% if the shares are registered with a nominee company (whether the recipient is a substantial shareholder
or not), and 20% if the dividend is distributed from income attributed to a Preferred Enterprise, a Preferred Technology Enterprise.
If the recipient of the dividend is an Israeli resident corporation such dividend income will be exempt from tax provided the income
from which such dividend is distributed was derived or accrued within Israel and was received directly or indirectly from another corporation
that is liable to Israeli corporate tax. An exempt trust fund, pension fund or other entity that is exempt from tax under section 9(2)
or section 129C(a)(1) of the Ordinance is exempt from tax on dividend.
Taxation
of non-Israeli shareholders on receipt of dividends.
Non-Israeli
residents (either individuals or corporations) are generally subject to Israeli income tax on the receipt of dividends paid on our ordinary
shares at the rate of 25%, which tax will be withheld at source, unless relief is provided in a treaty between Israel and the shareholder’s
country of residence. With respect to a person who is a “substantial shareholder” (as explained above) at the time of receiving
the dividend or on any time during the preceding twelve months, the applicable tax rate is 30%. Such dividends are generally subject
to Israeli withholding tax at a rate of 25% if the shares are registered with a nominee company (whether the recipient is a substantial
shareholder or not), and subject to the receipt in advance of a valid certificate from the ITA allowing for a reduced tax rate, 20% if
the dividend is distributed from income attributed to a Preferred Enterprise or a Preferred Technology Enterprise, and 4% if the dividend
is distributed from income attributed to a Technological Enterprise to a foreign company that holds solely or together with other foreign
companies 90% or more in the Israeli company and other conditions are met, (please note that the reduced withholding tax rate of 4% will
apply only on profits generated after the Preferred Technological Enterprise was acquired by a foreign company), or such lower rate as
may be provided in an applicable tax treaty. For example, under the United States-Israel Tax Treaty, the maximum rate of tax withheld
at source in Israel on dividends paid to a holder of our ordinary shares who is a U.S. Resident is 25%. However, generally, the maximum
rate of withholding tax on dividends, not generated by a Preferred Technological Enterprise, Preferred Enterprise, that are paid to a
United States corporation holding 10% or more of the outstanding voting capital throughout the tax year in which the dividend is distributed
as well as during the previous tax year, is 12.5%, provided that not more than 25% of the gross income for such preceding year consists
of certain types of dividends and interest. If the dividend is attributable partly to income derived from a Preferred Technological Enterprise,
or Preferred Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions
of the two types of income. We cannot assure you that we will designate the profits that we may distribute in a way that will reduce
shareholders’ tax liability. Application for the reduced tax rate requires appropriate documentation presented and specific instruction
received from the ITA to the extent tax is withheld at source at the maximum rates (see above), a qualified tax treaty recipient will
have to comply with some administrative procedures with the Israeli Tax Authorities in order to receive back the excess tax withheld.
A
foreign resident who had income from a dividend that was accrued from Israeli source, from which the full tax was deducted, will generally
be exempt from filing a tax return in Israel, provided that (i) such income was not generated from business conducted in Israel by the
taxpayer, (ii) the taxpayer has no other taxable sources of income in Israel with respect to which a tax return is required to be
filed, and (iii) he is not liable to pay Surtax (see below) in accordance with section 121B of the Ordinance.
Surtax
Subject
to the provisions of an applicable tax treaty, individuals who are subject to tax in Israel are also subject to an additional tax at
a rate of 3% on annual income (including, but not limited to, dividends, interest and capital gain) exceeding NIS 663,240 for 2022, which
amount is linked to the annual change in the Israeli consumer price index.
Estate
and Gift Tax
Israeli
law presently does not impose estate or gift taxes.