“Comments on the Ben-Bassat Committee Reports”

The point of departure of members of the Ben-Bassat Committee was to create a balanced reform in terms of the State budget. In our opinion, no real reform can be made without the participation of the Ministry of Finance. A real reduction in the tax burden cannot be created from thin air. Restricting the role of government in the reform to that of a mere broker will not reduce the tax burden, but rather will raise it, since undoubtedly the administrative mechanism will grow and have to be financed by the taxpayer. A real tax reform would have to tackle the black money problem in order to expand the tax base rather than issue a series of decrees which raise the tax burden of the general public. The article explains the dynamics characterizing tax laws and presents problematic points in the committee’s decisions as well as possible solutions.
Read More>

“Issuance Expenses – Tax Implications”

Although the distinction between a capital expenditure and an ordinary expenditure, similar to the distinction between capital income and ordinary income, is one of the basic principles of tax laws, the line between the two is not always clear. The article explores the challenges of deducting a company’s share issuance expenses, which are connected with the capital structure of the business, and therefore are deductible from the taxpayer’s ordinary income. Moreover, these expenses are non-deductible in the long term by deducting depreciation or deducting expenses incurred in selling an asset, as they cannot be identified with any depreciable asset. The article describes issues involving the deduction of share and option issuance expenses of an industrial company, the restructuring of industrial companies, offerings of various types of bonds, and how does the law treat issuances which did not materialize.
Read More>

Headline: “Tax on Real Estate Transactions – the Existing and Desired Situation”

The prevailing arrangement when writing the article regarding real estate associations, prior to the modification of the law, created distortions which were intermittently detrimental to the Income Tax Commissioner and to taxpayers. The article reviews the double taxation distortions created by section 14 of the Land Taxation (Betterment and Purchase) Law, 5723-1963 (hereinafter: the “Law”), the taxpayer’s rights in a situation where he is either required to pay a double tax or which creates tax evasion, and the possible solutions to these problems, such as using section 55 of the Law to avoid double taxation, taxation of the economic value of the transferred right, using sections 12-13 of the Law, etc.
Read More>

“Deadline for Submitting Assessment Grounds – Recommendation or Missing the Mark”

The article examines one aspect of the assessment proceedings in appeal proceedings, which is the duty imposed on the Income Tax Authority to submit the grounds of the assessment on time. The Nechushtan rule allows the Income Tax Authority to submit the grounds of assessment in an appeal proceeding at a later date than that prescribed in the regulations. The purpose of the article is to present and substantiate the argument that the tax authorities’ reliance on the aforementioned rule is confined to cases where the grounds of the assessment could not be submitted due to objective circumstances or in giving reasonable justifications.
Read More>

“More on the Right to Remain Silent”

This is a continuation article written on the heels of the executive order issued by the Income Tax Commissioner on the reciprocity between criminal and civil treatment of a case. Notwithstanding that the purpose of the order is not to regulate the right to remain silent in an income tax proceeding, one can glean details from it which shed more light on the issue. Although the executive order takes a rigid stance, which does not place an emphasis on the taxpayer’s right to remain silent, one can find indications of a softer position on the part of the Commissioner, and they are described in the article.
Read More>

“Income Taxpayer’s Right to Remain Silent”

A person investigated by Income Tax is obligated to cooperate in his investigation and submit all the necessary details to the assessing officer. This duty clashes with the right of the person under investigation not to incriminate himself. In the article, Advocates Yaacov and Ram Joulus review the law regarding the right to remain silent in an investigation, as set forth in section 135 of the Income Tax Ordinance. The distinction between the civil purpose, which this section aims to serve, and the criminal part of the Ordinance is of decisive importance, particularly when the concern hovering over civil proceedings is that the information revealed may result in the institution of corresponding criminal proceedings.
Read More>

“Application of Section 3(b) of the Income Tax Ordinance on the Winding-up of a Company”

Abstract: The list addresses the question whether a partial debt repayment (haircut) in company winding-up proceedings could be considered “forgiving a debt” within the meaning of the term in section 3(b) of the Income Tax Ordinance. This section has a two-pronged purpose: One is to correct the accounting distortion caused in the books after the partial payment amount is requested as an expense, and the other is an anti-planning purpose. In order to fall within the ambit of the section, several cumulative conditions must be met. When winding up an insolvent company, the amount of the debt repayment is determined according to orders of priority and the law, and therefore is not voluntary and there is a basic similarity between the shareholders and its creditors. Therefore, the loss of the creditors’ debt should not be regarding as “forgiving a debt”.
Read More>

“Buying an Apartment in the Name of the Children – Tax Implications”

In the aim of chilling the residential housing market, the Ministry of Finance and the Israel Tax Authority continue to occupy headlines with new information on the change and abolishment of tax exemptions on the purchase of residential apartments, to the dissatisfaction of the Ministry of Housing and Construction. Many investors tend to register investment apartments in the names of their adult children (over the age of 18), in which case they are considered a separate family unit to their parents, which entitles them to an exemption on a single residential apartment. The Israel Tax Authority is spot-checking declarations, while submitting a false declaration constitutes a criminal offense subject to heavy fines. In the article, Advocates Joulus and Gazit explain how to contend with this strict position of the Israel Tax Authority.
Read More>

“Strengthening the Power of the Israel Tax Authority and Diminishing the Power of the Taxpayer”

The article deals with the taxes chapter of the Economic Arrangements Law, 2015-2016. Although the law does not call for a particular tax hike, it does considerably increase the reporting and transparency requirements imposed on taxpayers and bodies managing their money, while broadening the powers of the Israel Tax Authority at the expense of the taxpayer. The new reporting rules vest the Israel Tax Authority with a great deal of power and consolidation of information on the private taxpayer compared to other taxpayers, such as banks and the public. Moreover, the amendment of the law, which enables the tax authorities to issue a partial assessment at an initial stage, unfairly undermines taxpayer certainty and the interest of reliance.
Read More>

“When the Tax Is Raised, Solidarity Will Dissipate”

The populistic cries recently sounded in the media to raise the purchase tax on investment apartments overlook today’s prevailing situation, where there is simply no supply of real estate for construction. They also ignore the bureaucratic effect of the planning proceedings on housing prices, and attribute their rise to the purchase of investment apartments. In this opinion paper, Adv. Joulus compares the investment in residential real estate investment (perceived as a conservative investment channel) with investments on the capital market. This consequently further drives up residential apartment prices, in overlooking the financial security that this channel provides to many middle class families, particularly given the zero interest bank rates.
Read More>

“Protect Victims of the Crisis in the Mega Supermarket Chain”

The Government of Israel, as a stable and strong body, and this includes the Israel Tax Authority, enjoys the preference vested with it by law, and therefore prefers itself over unsecured debtholders who have to make significant concessions on their debt. Mega is a real live example of the need to reconsider the orders of priority granted to the tax authorities in the aim of protecting weak creditors.
Read More>

“The Law to Erase the Debts of Economically Disadvantaged Debtors Will Enable Asset Concealment”

In the bill to amend the Execution Law, which will erase the debts of economically disadvantaged debtors, there is a loophole which will enable absconding with assets. When the proceedings against those debtors have ended, they will be able to enjoy their assets which were held in trust and which only the Israel Tax Authority knew of. In the article, Adv. Ram Joulus points to the loophole in the bill by giving the Israel Tax Authority quasi-judicial power to decide whether or not to appeal a settlement with a debtor, while it has a monopoly on the information.
Read More>

“Concealment of Assets with the Help of the Israel Tax Authority”

Granting a discharge to honest but unfortunate debtors, with whom all possible collection proceedings have been exhausted, could offer welcome relief and be beneficial to the economy, but must be implemented in a way that prevents cynical abuse of the new law by debtors. If the Government does not act to minimize the damage to creditors who will be unable to recover their full debt, these creditors will be the debtors of tomorrow. Moreover, the bill to erase the debts of “economically disadvantaged” debtors in debt collection proceedings could unfairly favor the debtors. The debtor could take advantage of the lack of dissemination of information, and before he declares himself a debtor of limited means could transfer all his assets to the name of other parties in a trust mechanism, wait patiently until the storm blows over and receive a discharge, and then repossess all his assets.
Read More>

“Past Losses Can Be Set off Against Profit from a Random Transaction – Case Law”

The article deals with a judgment in an appeal filed by our firm against a decision of Tel Aviv 3 Assessing Officer not to allow Speedy – Link Ltd. to set off past losses against profits in real estate brokerage transactions, which were unrelated to the company’s original business (running an Internet Cafe). Judge Harry Kirsh referred in his reasoned judgment to the financial purpose underlying the principle of allowing past losses – collection of tax on the taxpayer’s real enrichment. He maintained that there should not be an artificial separation, in applying more flexible rules than those applied until now by the Israel Tax Authority regarding the set off of past losses, as these rules created a severe financial distortion and were unfair to many taxpayers.
Read More>

Joulus Gazit & Co.