NOTE 10 - TAXES ON INCOME

a. The Company

Protalix BioTherapeutics, Inc. is taxed according to U.S. tax laws. The Company's income is taxed in the United States at the rate of up to 39%.

b. Protalix Ltd.

The Israeli Subsidiary is taxed according to Israeli tax laws:

1. Measurement of results for tax purposes

Since 2008, the Company has measured the results of the Israeli Subsidiary for tax purposes in nominal terms in NIS. Pursuant to the Israel Income Tax Law (Adjustments for Inflation), 1985, the Subsidiary's results for tax purposes have been measured through 2007 on a real basis, based on changes in the Israel consumer price index.

2. Tax rates

The income of the Israeli Subsidiary, other than income from “Approved Enterprises,” is taxed in Israel at the regular rates which were 25% in 2012 and 2013 and 26.5% for 2014 and thereafter.

Capital gain is subject to capital gain tax according to corporate tax rate in the year of selling the assets.

3. The Law for the Encouragement of Capital Investments, 1959 (the “Encouragement of Capital Investments Law”)

Under the Encouragement of Capital Investments Law, including Amendment No. 60 to the Encouragement of Capital Investments Law as published in April 2005, by virtue of the “Approved Enterprise” or “Benefited Enterprise” status the Israeli Subsidiary is entitled to various tax benefits as follows:

a. Reduced tax rates

Income derived from the Approved Enterprise during a 10-year period commencing upon the year in which the enterprise first realizes taxable income is tax exempt, provided that the maximum period to which it is restricted by the Encouragement of Capital Investments Law has not elapsed.

The Israeli Subsidiary has an “Approved Enterprise” plan since 2004 and “Benefited Enterprise” plan since 2009. The period of benefits in respect of the main enterprise of the Company has not yet commenced. The period during which the Company is entitled to benefits in connection with the Benefited Enterprise expires in 2021.

If the Israeli Subsidiary subsequently pays a dividend out of income derived from the “Approved Enterprise” or “Benefited Enterprise” during the tax exemption period, it will be subject to a tax on the amount distributed, including any company tax on these amounts, at the rate which would have been applicable had such income not been exempted.

In addition to the corporate taxes in Israel, the Company might be subject to a withholding tax on the U.S. revenue source portion of the payments made to the Company for its share of Pfizer's net profits under the Pfizer Agreement. The withholding tax rate is currently 15%.

b. Accelerated depreciation

The Israeli Subsidiary is entitled to claim accelerated depreciation, as provided by Israeli law, in the first five years of operation of each asset, in respect of buildings, machinery and equipment used by the Approved Enterprise and the Benefited Enterprise.

c. Conditions for entitlement to the benefits

The Israeli Subsidiary's entitlement to the benefits described above is subject to its fulfilling the conditions stipulated by the law, rules and regulations published thereunder, and the instruments of approval for the specific investment in an approved enterprise. If there is any failure by the Israeli Subsidiary to comply with these conditions, the benefits may be cancelled and the Subsidiary may be required to refund the amount of the benefits, in whole or in part, with interest. The Israeli Subsidiary received a final implementation approval with respect to its “Approved Enterprise” from the Investment Center.

d. Amendment of the Law for the Encouragement of Capital Investments, 1959

The Encouragement of Capital Investments Law was amended as part of the Economic Policy Law for the years 2011-2012, which was passed by the Israeli Knesset on December 29, 2010 (the “Capital Investments Law Amendment”).

The Capital Investments Law Amendment sets alternative benefit tracks to those currently in effect under the provisions of the Encouragement of Capital Investments Law.

The benefits granted to the Benefited Enterprises will be unlimited in time, unlike the benefits granted to special Benefited enterprises, which will be limited for a 10-year period. The benefits shall be granted to companies that will qualify under criteria set in the law; for the most part, those criteria are similar to the criteria that were set in the Encouragement of Capital Investments Law prior to its amendment.

Under the transitional provisions of the Encouragement of Capital Investments Law, the Company is entitled to take advantage of the tax benefits available under the Encouragement of Capital Investments Law prior to its amendment until the end of the benefits period, as defined in the Encouragement of Capital Investments Law. The Company will be allowed to set the “year of election” no later than tax year 2012, provided that the minimum qualifying investment was made not later than the end of 2010. On each year during the benefits period, the Company will be able to elect that the Capital Investments Amendment apply to the Company, thereby making the tax rates described above available to the Company. An election to have the Capital Investments Amendment apply is irrecoverable. The Company elected not to have the Capital Investments Amendment apply to the Company.

c. Tax losses carried forward to future years

As of December 31, 2014, the Company had aggregate net operating loss (NOL) carry-forwards equal to approximately $138.8 million that are available to reduce future taxable income as follows:

1. The Company

The NOL carry-forward of the Company equal to approximately $16.9 million may be restricted under Section 382 of the Internal Revenue Code (“IRC”). IRC Section 382 applies whenever a corporation with NOL experiences an ownership change. As a result of IRC Section 382, the taxable income for any post change year that may be offset by a pre-change NOL may not exceed the general IRC Section 382 limitation, which is the fair market value of the pre-change entity multiplied by the IRC long-term tax exempt rate.

2. Protalix Ltd.

At December 31, 2014, the Israeli Subsidiary had approximately $121.9 million of NOL carry-forwards that are available to reduce future taxable income with no limited period of use.

d. Deferred income taxes:

The components of the Company's net deferred tax assets at December 31, 2013 and 2014 were as follows:

	December 31,
(U.S. dollars in thousands)	2013			2014
In respect of:
Research and development expenses	$	5,257		$	3,136
Property and equipment		(491	)		(372	)
Provision for vacation		417			374
Severance pay obligation		209			185
Deferred revenues		9,867			8,658
Net operating loss carry forwards		23,167			28,130
Valuation allowance		(38,426	)		(40,111	)
		-			-

Deferred taxes are computed using the tax rates expected to be in effect when those differences reverse. The Company used tax rates of 39%, 26.5% and 0%.

e. Reconciliation of the theoretical tax expense to actual tax expense

The main reconciling item between the statutory tax rate of the Company and the effective rate is the provision for full valuation allowance in respect of tax benefits from carry forward tax losses due to the uncertainty of the realization of such tax benefits (see above).

f. Tax assessments

In accordance with the Income Tax Ordinance, as of December 31, 2014, all of Protalix Ltd.'s tax assessments through tax year 2010 are considered final.

A summary of open tax years by major jurisdiction is presented below:

Jurisdiction:			Years:
Israel			2011-2014
United States (*)			2010-2014

(*)	Includes federal, state and local (or similar provincial jurisdictions) tax positions.