US embassy cable - 05TELAVIV5703

C O N F I D E N T I A L TEL AVIV 005703 
 
SIPDIS 
 
E.O. 12958: DECL: 09/15/2015 
TAGS: PGOV, PHUM, KIRC, ECON, IS, GOI INTERNAL 
SUBJECT: MFA SEEKS WAY TO HELP LUTHERAN HOSPITAL TO STAY 
SOLVENT 
 
Classified By: Political Counselor Norman Olsen for reasons 1.4 (b,d). 
 
1.  (C) MFA Director of the Division for Religious Affairs 
Zvi Tal (protect) told Embassy Poloffs and visiting NEA/IPA 
Poloff September 14 that the GOI wishes to find a "discreet 
way" to ensure that the Augusta Victoria Hospital in 
Jerusalem, run by the Lutheran World Federation (LWF), 
remains in operation despite a 2002 Jerusalem District Court 
decision revoking the hospital's tax exempt status and 
imposing several years worth of back taxes. 
 
2.  (C) Tal said that MFA officials met with LWF President 
Bishop Mark S. Hanson during the LWF Council's August 
31-September 6 annual meeting in Jerusalem, and told Hanson 
openly that the MFA believes it is in its "best interest" 
that the hospital "continue and even enlarge its operations." 
 Tal said that, in addition, the MFA instructed the Israeli 
Ambassador to Geneva to approach the LWF Secretariat there to 
recommend that the church try to reach an out-of-court 
settlement because the MFA believes it is likely that the 
Supreme Court will uphold the District Court decision.  Tal 
said that the GOI now plans to convene an interministerial 
meeting to see whether a way exists to funnel assistance to 
the LWF to offset its tax expenses.  Tal explained that the 
LWF is actually entitled to state assistance and can ask for 
budgetary aid on a permanent basis or for an earmarked 
project. 
 
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Background 
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3.  (C) A 1966 agreement between Jordan and the Lutheran 
World Federation conferred tax exempt status on Augusta 
Victoria hospital.  This status was then recognized by Israel 
in 1967 in practice, but never in law.  The District Court 
decided in December 2002 that the 1966 Jordanian agreement is 
not valid pursuant to a 1978 law requiring all tax exemptions 
to be based on Israeli law.  Since the agreement was never 
turned into law, Tal explained, the court revoked the 
hospital's privilege.  According to Tal, the District Court 
also decided that the LWF must pay back-taxes from 2001, 
amounting to what Tal said is about USD one million.  The 
Supreme Court is scheduled to hear the LWF's appeal on 
December 1, 2005. 
 
4.  (C) LWF Jerusalem Director Mark Brown told ConGen Poloff 
August 31 that the LWF feels that the GOI is acting in bad 
faith, as he said that the GOI specifically agreed in 1967 to 
exempt the LWF from taxation, as had been previous practice 
under Jordanian rule and the British Mandate, but now is 
using internal legal technicalities to violate its agreement. 
 Brown said that the LWF has no interest in the specific 
means by which the GOI resolves its internal legal disputes 
to honor its agreement -- only in the result.  He said that 
the LWF "simply will not be able to provide close to our 
current level of service if we have to pay the employer tax. 
If we also have to pay the claimed back taxes, amounting to 
millions of dollars, it will devastate and possibly end our 
operations." 
 
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KURTZER