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Dramatic Proposed Change in Tax Litigation Proceedings in Israel – Taxpayers will have to Pay 30% of the Tax in Dispute upon Filing Tax Appeals in Court

5 August 2021

As part of the 2021-2022 budgetary legislation process, the Israeli Government published on August 2, 2021, a memorandum regarding a proposed obligation to pay a portion of the tax in dispute during tax litigation proceedings (the “Memorandum“).

The 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 postpone the obligation of the taxpayer to pay the tax in dispute, if: (i) the turnover of the taxpayer is at least NIS 20 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 20 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. It is unclear whether the Memorandum is intended to apply also to existing tax appeals.

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 tax appeals pending before courts was NIS 20 billion.

Considering the aggressive tax audit environment in Israel in general, and in particular in the context of the activity of multinational corporations, the proposed legislation may have severe adverse implications. It may encourage and result in the issuance of inflated tax assessments, frustrate efficient and justified settlements, and harm the administrative and legal due process, as well as the certainty needed for conducting business activity in Israel.

The Tax Committee of the Israel Bar, co-headed by Herzog’s Chairman, Adv. Meir Linzen, is objecting to the proposed legislation.

Kind Regards,
Herzog Fox and Neeman


Meir Linzen | Chairman
Chairman of the firm and head of tax department​
Ofer Granot | Partner
Tax department

Yuval Navot | Partner
Tax Department

Guy Katz | Partner
Tax Department


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