Israeli-American Tech Entrepreneur Loses Bid for 3 Million Shekel Tax Refund

American-Israeli entrepreneur Talmon Marco will not receive a refund of 3 million shekels in purchase tax he paid on a luxury penthouse. The Chairman of the Appeals Committee near the Tel Aviv District Court, Judge Heri Kirsch, ruled that Marco failed to submit his request to change the apartment's tax classification on time. Marco, the founder and former CEO of the messaging app Viber, purchased the two-story penthouse in a luxury Tel Aviv tower for 64 million shekels in September 2015.

At the time of purchase, the tax rate for a finished residence was 8% to 10%, while for a shell apartment (not yet habitable) it was 5%. The purchase agreement stipulated that the parties would report the apartment as finished to the Tax Authority to reduce the sellers' capital gains tax. Marco reported the purchase in November 2015 as a finished residence, paying 6.3 million shekels in purchase tax, which was approved in February 2016.

Later, the Tax Authority received information indicating the property was a shell apartment, which would incur higher capital gains tax for the sellers. Following an inspection in August 2017, where Marco stated the apartment's condition hadn't changed, the Authority investigated the sellers. In June 2016, Marco testified that he purchased a shell apartment and signed documents prepared by his lawyer. In November 2018, the Authority revised the sellers' assessment, imposing a higher capital gains tax and classifying it as a shell apartment.

In June 2020, Marco requested to amend his 2015 self-assessment to reflect the shell apartment status, which would entitle him to a 3.2 million shekel refund. The Authority rejected the request, citing a four-year limit for amending tax assessments, making his application seven months late. The Authority found no exceptional reason to grant an extension.

Marco appealed, and while both parties agreed it was a shell apartment, they disagreed on extending the deadline. Judge Kirsch upheld the Tax Authority's position, ruling against an extension. He acknowledged that this could mean Marco overpaid his purchase tax by over 3 million shekels, highlighting the tension between the principle of "true tax" and the finality of assessments, as well as an aspect of good faith. Kirsch rejected Marco's claim that the Authority should have corrected his tax liability proactively when revising the sellers' assessment, stating Marco knew he was buying a shell apartment and that the Authority had not yet completed its review of his case. The judge emphasized that the initial description of the property as a finished residence was intentional and collaborative, aimed at reducing the sellers' capital gains tax. Kirsch noted that Marco, an educated and successful tech entrepreneur, had ample opportunities to correct his report over four years but did not, only acting after the sellers' case reached the courts. Marco was ordered to pay 40,000 shekels in expenses.