NOTE 10 - TAXES ON INCOME

Tax laws applicable to the Company and its subsidiaries

Taxation in the United States

InspireMD, Inc. is taxed under U.S. tax laws.

Taxation in Israel

InspireMD Ltd. is taxed under the Israeli Income Tax Ordinance.

On December 6, 2011, the "Tax Burden Distribution Law" Legislation Amendment (2011) was published in the Official Gazette. Under this law, the previously approved gradual decrease in the corporate tax rate was cancelled. The Corporate tax rate was increased from 24% in 2011, to 25% beginning 2012.

Taxation in Germany

InspireMD GmbH is taxed according to the tax laws in Germany. Accordingly, the applicable tax rates are corporate tax rate of 15.825% and trade tax rate of 12.075%.

Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the "Law"):

InspireMD Ltd. has been granted a "Beneficiary Enterprises" status under the Investment Law including Amendment No. 60 thereof, which became effective in April 2005.

The tax benefits derived from any such Beneficiary Enterprise relate only to taxable profits attributable to the specific program of investment to which the status was granted.

The main benefit, to which InspireMD Ltd. is entitled, conditional upon the fulfilling of certain conditions stipulated by the above law, is a two-year exemption and five years of a reduced tax rate of 25% from tax on income derived from their beneficiary activities in facilities in Israel. The tax benefit period is twelve years from the years of implementation. The Company elected the year 2007, as the year of election, and 2011 as an additional year of election, with the twelve year period of benefits beginning in 2011.

In the event of a distribution of tax-exempt income attributable to "Beneficiary Enterprises" as a cash dividend, the Company will be required to pay tax at a rate of 25% on the amount distributed. In addition, dividends originating from income attributable to the "Beneficiary Enterprises" will be subject to a 15% withholding tax.

Should InspireMD Ltd. derive income from sources other than the "Beneficiary Enterprises" during the period of benefits, such income shall be taxable at the regular corporate tax rate.

Conditions for entitlement to the benefits

The entitlement to the above benefits is conditional upon InspireMD Ltd. fulfilling the conditions stipulated by the law, regulations published thereunder and the instruments of approval for the specific investments in approved assets. In the event of failure to comply with these conditions, the benefits may be cancelled and InspireMD Ltd. may be required to refund the amount of the benefits, in whole or in part, with the addition of interest.

The Israeli Law for Encouragement of Capital Investments, 1959 was amended as part of the Economic Policy Law for the years 2011-2012, which was passed in the Knesset (the Israeli parliament) on December 29, 2010. The amendment became effective as of January 1, 2011.

The amendment set alternative benefit tracks to the ones then in place, as follows: (i) an investment grants track designed for enterprises located in national development zone A and (ii) two new tax benefits tracks (for preferred enterprises and for special preferred enterprises), which provide for application of a unified tax rate to all preferred income of the company, as defined in the amendment.

If the Company will opt for application of Preferred Enterprise status, it will accordingly be subject, under law to the following tax rates:

Years	Areas in Israel (other than "Zone A"- as defined by the law)

"Preferred enterprise"
2013		12.5	%
2014*		12.5	%
2015 and thereafter*		12	%

On August 5, 2013 the Law for Change of National Priorities 2013 (Legislative Amendment for Achieving the Budgetary Goals for 2013-2014), as describe below, was published, and among other things, amended the tax rate for the years 2014 and thereafter.

The benefits granted to the preferred enterprises were to be unlimited in time, unlike the benefits granted to special preferred enterprises, which were to be limited for a period of 10 years. The benefits were to be granted to companies that qualified under criteria set in the amendment; for the most part, those criteria were similar to the criteria that were set in the law prior to its amendment.

Under the transitional provisions of the amendment, an Israeli company was allowed to continue to enjoy the tax benefits available under the law prior to its amendment until the end of the period of benefits, as defined in the law. On each year during the period of benefits, the company is able to opt for application of the amendment, thereby making available to itself the tax rates above. Opting for application of the amendment is recoverable.

On August 5, 2013, the Law for Change of National Priorities (Legislative Amendments for Achieving the Budgetary Goals for 2013-2014), 2013 (hereinafter, the "Law") was published in Reshumot (the Israeli government official gazette), and enacts, among other things, the following amendments:

Raising the corporate tax rate beginning in 2014 and thereafter to 26.5% (instead of 25%).

Increasing the tax rate on the income of preferred enterprises from the 2014 tax year and thereafter, as stated in the Encouragement of Capital Investment Law, 1959 (hereinafter - the Encouragement Law) of a qualifying company in Development Zone A to 9% (instead of 7% in 2014 and 6% in 2015 and thereafter) and companies located in zones other than Zone A to 16% (instead of 12.5% in 2014 and 12% in 2015 and thereafter). In addition, the tax rate on dividends distributed on January 1, 2014 and thereafter originating from preferred income under the Encouragement Law will be raised to 20% (instead of 15%).

When a company distributes revaluation gains to its shareholders, the asset for which revaluation gains are recognized in the financial statements of the company is deemed as an asset that was sold on distribution day (notional sale) and therefore such revaluation gains are liable to tax. Revaluation gains are defined by the Law as retained earnings not subject to corporate tax, of the kind indicated by the Minister of Finance with approval of the Finance Committee of the Knesset, at over NIS 1 million to be calculated accumulatively from the date of acquiring the asset.

The balances of deferred tax as of June 30, 2013 does not account for the expected impact of the Law as its legislation has not been effectively completed by that date.

The impact of the Law on deferred tax balance of the Company is not expected to be material.

Carry forward tax losses

As of June 30, 2013, InspireMD Ltd. had a net carry forward tax loss of approximately $26 million. Under Israeli tax laws, the carry forward tax losses can be utilized indefinitely. As of June 30, 2013, the Company had a net carry forward tax loss of approximately $19 million. Under U.S. tax laws, the Company's tax losses can be utilized two years back and twenty years forward. As such the Company's carry forward tax losses will begin to expire on June 30, 2031.

Tax assessments

The Company and its subsidiaries have not been assessed for tax purposes since incorporation.

Loss before income taxes

The components of loss before income taxes are as follows:

	Year ended June 30,
	2013			2012
	($ in thousands)
Profit (loss) before taxes on income:
InspireMD, Inc.	$	(19,613	)	$	(11,078	)
InspireMD Ltd.		(9,653	)		(6,501	)
InspireMD GmbH		16			(4	)
	$	(29,250	)	$	(17,583	)

Current taxes on income

Tax expenses in the amount of approximately $8,000 and $14,000 for the years ended June 30, 2013 and 2012, respectively, are related to non-U.S. operations.

The following is a reconciliation of the theoretical tax expense, assuming all income were taxed at the regular tax rates applicable to the Company in the U.S. and the actual tax expense:

	Year ended June 30,
	2013			2012
	($ in thousands)
Loss before taxes on income, as reported in the statements of operations	$	29,250		$	17,583
Theoretical tax benefit		(9,945	)		(5,984	)
Increase in tax benefit resulting from permanent differences		1,613			1,448
Increase (decrease) in taxes on income resulting from the computation of deferred taxes at a rate which is different from the theoretical rate		205			(75	)
Increase (decrease) in uncertain tax positions - net		-			(71	)
Decrease in theoretical tax benefit resulting from subsidiaries different tax rate		(61	)		1,408
Change in corporate tax rates, see c above		-			(245	)
Change in valuation allowance		8,196			3,533
	$	8		$	14

As of June 30, 2013 and 2012, the Company determined that it was more likely than not that the benefit of the operating losses would not be realized and consequently, management concluded that full valuation allowances should be established regarding the Company's deferred tax assets.

The changes in the valuation allowance for the years ended June 30, 2013 and 2012 were as follows:

	Year ended June 30,
	2013		2012
	($ in thousands)
Balance at the beginning of the year	$	8,050	$	4,517
Changes during the year		8,196		3,533
Balance at the end of the year	$	16,246	$	8,050

Accounting for Uncertain Tax position

The following is a reconciliation of the total amounts of the Company's unrecognized tax benefits during the years ended June 30, 2013 and 2012:

	Year ended June 30,
	2013		2012
	($ in thousands)
Balance at beginning of period	$	-	$	71
Decrease in unrecognized tax benefits as a result of tax positions taken during a prior year				(71	)
Balance at end of period	$	-	$	-

All of the above amounts of unrecognized tax benefits would affect the effective tax rate if recognized.

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

Jurisdiction		Years
U.S.		2008-2012

Israel		2007-2012

Germany		2007-2012

The Company and its subsidiaries applied for a change of fiscal year for its tax filings to end in June 30, 2012 in Israel.

Deferred income tax:

	Year ended June 30,
	2013			2012
	($ in thousands)
Short-term:
Allowance for doubtful accounts	$	82		$	54
Provision for bonus		51
Provision for vacation and recreation pay		79			70
		212			124
Long-term:
R&D expenses		1,227			746
Beneficial conversion feature		-			(1,251	)
Non cash issuance costs		-			89
Share-based compensation		1,698			693
Carry forward tax losses		13,060			7,631
Accrued severance pay, net		49			18
		16,034			7,926
Less-valuation allowance		(16,246	)		(8,050	)
	$	-		$	-