Israeli Court Orders PR Executive to Pay $950,000 in Back Taxes
Jerusalem District Court Judge Avigdor Dorot has ruled that Israeli-Haredi PR executive Shlomo Freiman and his company, Freiman Productions, must pay NIS 3.7 million (approximately $950,000) in back taxes. The ruling stems from the 2015 sale of Freiman's network of Haredi community newspapers, including the main publication "Le'Inyan." The network was sold to Tzvi Linzer's company, Gal Beitar Advertising Services and Productions, for NIS 14.6 million. The payment was structured in monthly installments until 2026, with an additional NIS 10,000 monthly payment for Freiman and his wife's lifetime, and a non-compete clause.
Freiman Productions transferred 87% of the sale proceeds to Freiman personally in April 2015, with Freiman agreeing not to compete with the company. The company initially reported only 13% of the sale proceeds, or NIS 1.9 million, as income for 2015. Freiman did not report his personal share of the proceeds that year, later reporting NIS 81,000 for goodwill in 2016, which he offset against a capital loss. The Israel Tax Authority assessed Freiman Productions with NIS 10.1 million in income and NIS 2.7 million in taxes for 2015, and NIS 760,000 in income and NIS 45,000 in taxes for 2016. Freiman personally was assessed NIS 3.9 million in income and NIS 1.15 million in taxes for the years 2015-2017.
The Tax Authority argued that the sale structure was an artificial transaction designed to evade taxes. Freiman contended that the entire proceeds were his personal income, with the value of "Le'Inyan" being only NIS 1 million, and the rest attributed to his personal goodwill and the non-compete agreement. Judge Dorot rejected Freiman's appeal, stating that Freiman Productions, not Freiman personally, sold the newspapers. He noted that the agreement between Freiman and Linzer, despite their animosity, indicated the sale created a capital gain for the company and a dividend for Freiman, which is taxable.
Dorot upheld the Tax Authority's valuation of the deal at NIS 10 million, rejecting Freiman's claim that it was worth only NIS 1 million. He also affirmed the requirement for accrual-based reporting of the transaction in 2015, rather than cash-basis reporting over the payment period. The judge concluded that the internal agreement splitting the proceeds between Freiman and his company was an artificial arrangement aimed at reducing taxes, lacking commercial justification beyond tax benefits. Freiman and his company were also ordered to pay NIS 45,000 in legal costs.
