“The Israeli Tax Authority (the “Authority”) recently published a draft proposal regarding positions that must be reported, including indirect taxes (VAT and customs), which constitute the ITA’s interpretation of the law.  A trader who acts in contravention of these positions must report to the authority and schedule a tax audit.

On the other hand, if a trader believes that the ITA has acted erroneously and wishes to avoid an audit, and VAT, for example, he may charge the customer VAT instead.  A trader who abides by the law, and conducts himself in this manner, will be meeting all expectations of the authority.

However, recently, the Supreme Court ruled that this would leave the trader exposed to a class action.  Furthermore, in the case of such an action, he may find himself entitled to partial indemnification by the state, and if he takes advantage of full indemnification, we are essentially ruling in contrast with state law, causing exposure to the state budget, between indirect taxes, where the consumer sues the trader for direct taxes, where the state is always the defendant, and it is doubtful whether that was the intention of the legislator.”

For the full opinion (in Hebrew) – click here.