Dear friends and colleagues,

As part of the 2023-2024 budgetary legislation process, the Israeli Government published on February 16, 2023, a memorandum regarding a proposed requirement to pay 30% of the tax in dispute upon filing a tax appeal in court (the “Memorandum“). A similar legislative proposal, which eventually was not passed, was raised during the budgetary legislation process for 2021-2022.

The current Memorandum proposes that filing a tax appeal in court against a final tax assessment issued by the Israel Tax Authority (“ITA“) relating to income tax, VAT or real estate tax, will not fully stay the obligation of the taxpayer to pay the tax in dispute, if: (i) the turnover of the taxpayer is at least NIS 30 million in one of the tax years under the final tax assessment, or (ii) if the tax in dispute under the final tax assessment is at least NIS 30 million. In such a case, upon filing the appeal, the taxpayer will be required to pay 30% of the tax in dispute in accordance with the final assessment against which the appeal is filed.

According to the Memorandum, a “final tax assessment” is a decision of the ITA in an administrative tax appeal (an “Objection”) that was filed by the taxpayer against a first stage assessment issued by the ITA. Separate final income tax assessments that are issued within 30 days will be considered as a single final tax assessment for the purpose of the tests above. The Memorandum provides that it will apply to appeals against final tax assessments that will be issued after the Budget Law for 2023-2024 is passed.

This is a dramatic change in the current rules. At present, once the ITA issues a final tax assessment relating to income tax, VAT or real estate tax, the taxpayer may file an appeal against the assessment in the District Court, without paying the tax in dispute (which continues to bear 4% interest and linkage differentials). If needed, the District Court may require the taxpayer to provide guarantees for the payment of the tax in dispute. The taxpayer is required to pay the tax in dispute once the District Court renders its judgment in the appeal, even if the taxpayer files an appeal to the Supreme Court against the judgment of the District Court.

The Memorandum provides that the goals of the proposed change are to reduce the filing of baseless tax appeals, which delay the payment of tax amounts to the ITA, as well as to increase the tax amount actually collected. According to the Memorandum, as of 2019, the total amount of uncollected tax in dispute in income tax appeals pending before courts was NIS 20 billion, and NIS 628 million in VAT appeals.

The Tax Committee of the Israel Bar, co-headed by Herzog’s Chairman, Adv. Meir Linzen, is objecting to the proposed legislation, which harm the administrative and legal due process and the taxpayer’s right and ability to approach court.

For the Memorandum >> click here

The public can submit comments to the Memorandum until March 4, 2023.

We will be happy to assist you with any questions or clarification regarding this matter. 

Tax Department
Herzog Fox and Neeman