Israeli Court Rules Controlling Shareholder Owes Millions in Back Taxes
Translated & summarized from Bizportal by baba
An Israeli court has ruled that Oded Feller, controlling shareholder of Emilia Development, must pay full taxes on a 2017 corporate restructuring, potentially amounting to millions of shekels. The Haifa District Court rejected Feller's appeal, stating that the original acquisition dates of shares must be used to maintain tax continuity. The ruling prevents Feller from benefiting from lower tax rates by shifting capital gains. Feller was also ordered to pay 20,000 shekels in legal costs.
The story in 5 lines · by baba
- Oded Feller must pay full taxes on a 2017 corporate restructuring, a court ruled.
- The ruling is expected to cost Feller millions of shekels in back taxes.
- The court rejected Feller's appeal to use earlier acquisition dates for tax calculations.
- Judge Orit Weinstein emphasized maintaining tax continuity and preventing aggressive tax planning.
- Feller was ordered to pay 20,000 shekels in legal expenses.
Oded Feller, the controlling shareholder of Emilia Development, will be required to pay full taxes on a 2017 corporate restructuring that transferred shares of a private company to the publicly traded Emilia. This decision was made by Haifa District Court Judge Orit Weinstein, who rejected Feller's appeal against the Haifa tax assessor's ruling. The ruling is expected to result in a tax liability of millions of shekels.
Emilia is a holding company involved in industry, logistics, and industrial services, with a market cap of 580 million shekels. Feller currently holds 86% of its shares. The dispute centered on the definition of the "acquisition date" for calculating capital gains tax, particularly concerning linear tax rules and the impact of various corporate restructurings over the years.
Feller's father, Emil Feller, originally founded Chemobil in 1959. Oded and Gideon Feller inherited A. Feller, the parent company of Chemobil. In 1997, Oded Feller established O. Feller and transferred his shares in A. Feller and Chemobil to it in a tax-exempt restructuring. In July 2017, Feller transferred his shares in O. Feller to Emilia in exchange for 96% of Emilia's shares, a move that triggered the tax dispute.
Feller argued for a 10% tax on profits accrued before January 1, 2003, and 25% on subsequent profits. However, the tax assessor disagreed, issuing a discretionary assessment. Judge Weinstein sided with the tax authorities, stating that setting the acquisition date to the first restructuring would break the tax continuity and create a period without taxation. She emphasized that the law only allows for tax deferral, not a final exemption, and that accepting Feller's position would enable aggressive tax planning by shifting capital gains to lower tax brackets.
The court ruled that to maintain tax continuity, the original acquisition dates of the shares in O. Feller, dating back to when Emil Feller was issued shares in Chemobil and A. Feller, must be used. This ensures the final capital gains tax accurately reflects the value increase throughout Feller's entire holding period. The court ordered Feller to pay 20,000 shekels in legal expenses.