RETALIX LTD.

Backup Withholding
A U.S. holder may be subject to backup withholding (currently at a rate of 28%) with respect to cash dividend payments and proceeds from a
disposition of ordinary shares. In general, backup withholding will apply only if a U.S. holder fails to comply with certain identification procedures.
Backup withholding will not apply with respect to payments made to certain exempt recipients, such as corporations and tax-exempt organizations. Backup
withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a U.S. holder, provided that the required
information is timely furnished to the IRS.
Non-U.S. Holders of Ordinary Shares
Except as provided below, an individual, corporation, estate or trust that is not a U.S. holder generally will not be subject to U.S. federal income or
withholding tax on the payment of dividends on, and the proceeds from the disposition of, an ordinary share.
A non-U.S. holder may be subject to U.S. federal income or withholding tax on a dividend paid on an ordinary share or the proceeds from the
disposition of an ordinary share if (1) such item is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States
and, in the case of a resident of a country which has an income tax treaty with the United States, such item is attributable to a permanent establishment or,
in the case of gain realized by an individual non-U.S. holder, a fixed place of business in the United States; or (2) in the case of a disposition of an ordinary
share, the individual non-U.S. holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are
met; or (3) the non-U.S. holder is subject to tax pursuant to the provisions of the U.S. tax law applicable to U.S. expatriates.
In general, non-U.S. holders will not be subject to the 28% backup withholding with respect to the payment of dividends on ordinary shares if
payment is made through a paying agent, or office of a foreign broker outside the United States. However, if payment is made in the United States or by a
U.S. related person, non-U.S. holders may be subject to backup withholding, unless the non-U.S. holder provides a taxpayer identification number, certifies
to its foreign status, or otherwise establishes an exemption. A U.S. related person for these purposes is a person with one or more current relationships with
the United States.
Non-U.S. holders generally may be subject to backup withholding at a rate of 28% on the payment of the proceeds from the disposition of ordinary
shares to or through the U.S. office of a broker, whether domestic or foreign, or the office of a U.S. related person, unless the holder provides a taxpayer
identification number, certifies to its foreign status or otherwise establishes an exemption. Non-U.S. holders will not be subject to backup withholding with
respect to the payment of proceeds from the disposition of ordinary shares by a foreign office of a broker.
The amount of any backup withholding from a payment to a non-U.S. holder will be allowed as a credit against such holder’s U.S. federal income
tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.
Taxation of our U.S. Subsidiaries
The following summary describes our organizational structure in the United States and the applicable income taxes.
We operate in the United States through several corporations. Retalix Holdings, Inc., or Retalix USA Holdings, is the U.S. parent, which is whollyowned
by Retalix Ltd. Retalix USA Holdings owns 100% of the stock of several U.S. corporations – Retalix USA Inc., RCS, BASS (BASS – through
Retalix USA Inc.), OMI, TCI, SCM and 50.01% (95% as March 31, 2006) of a U.S. limited liability company – StoreNext USA. StoreNext USA is treated
as a partnership for U.S. federal tax purposes. As such, 50.01% (95% as of March 31, 2006) of StoreNext USA’s results are included in the Retalix’s U.S.
federal income tax return. Retalix USA Holdings and its wholly-owned subsidiaries have elected to file U.S. federal income tax returns on a consolidated
company basis. U.S. federal income taxes are imposed on the taxable income of the U.S. consolidated group at progressive income tax rates ranging from
15% to 35%. The corporation is subject to the same U.S. federal income tax rates on capital gain income. The U.S. companies are subject to state
income/franchise taxes in the states in which they do business. Depending on each state’s requirements, taxes may be imposed on a consolidated, combined
or separate company basis.
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