withdrawals of the owners were recorded as "shareholder payments" (loans) in thefinancial accounts of a particular company, and even interest income wasrecognized with the withdrawals by the provisions of Section 3 I of theRegulation of Israel Taxes.

Section 3(i1) (2) of the Israeli tax ordinance states that if the withdrawal funds werenot returned to the company at the end of the tax year following the tax yearin which they were withdrawn, the withdrawal from the company will beconsidered as a shareholder income and classified as a dividend.

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