On June 8, 2020, the Central District Court in Lod published its judgment in Delek Motors Ltd v. The State of Israel (Customs and VAT Division) (Civil Case 46491-01-16). This judgment concerned the issue of how imported goods are valued and, specifically, whether a conditional discount offered on the price of these goods (that depends on the importer meeting certain sales targets) should be considered in the customs valuation. The judgment was given on June 4, 2020 in the Central District Court in Lod by the Honorable Judge Samuel Bornstein.

In this case, the Court accepted Plaintiff’s claim and dismissed its tax deficits, ruling that the valuation of goods should include the discount received by Plaintiff from its supplier, which was contingent upon meeting future sales targets. The Court ruled that it preferred to assume that the importer would meet its sales targets and, therefore, would not return the discount it received to the supplier. However, in the event that the importer would fail to meet its sales targets, then this discount could be returned to the supplier by increasing the cost paid for the following shipment (and, therefore, import taxes would be paid on the value of discount). Moreover, if the discount would be returned to the supplier in another fashion, then the importer could make a declaration to this effect to the Israel Tax Authority and then pay the additional tax.

The consequence of this assumption is that taxes are paid based on the actual price paid for goods (i.e. including the discount). This is consistent with the central idea behind changing the valuation method for goods in the Israeli Customs Ordinance in light of the General Agreement on Tariffs and Trade (GATT): “The starting point is the actual transaction price of valued goods, and alternative methods are adopted only when this price cannot be determined.”

This District Court judgment follows a trend in Israeli jurisprudence that recognizes discounts in price and that import duties will be levied on the actual price paid by the importer to the supplier.

We would be happy to advise or discuss further discounts that have been given or will be given in future, as well as the implications of this ruling on the value of goods for customs purposes.

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Please be in contact with us in case you have any concerns or doubts regarding the valuation of goods and acceptability of discounts on price. We will be happy to answer any questions or clarifications on this matter.

Herzog Fox & Neeman