Tax Authority Criticized for Hiding Stance in Tax Benefit Case

An Israeli appeals committee has upheld a tax authority ruling denying a construction company a significant tax refund, despite criticizing the authority for withholding a crucial legal opinion. The case involved Briga, a contracting company that purchased land in Ra'anana in June 2020 for a project of approximately 150 housing units. Briga paid 6% in purchase tax, totaling around 6.3 million shekels, and sought a refund of one-sixth of this amount, approximately 1.06 million shekels.

The tax benefit, under Regulation 2(1a) of the Land Appreciation Tax Regulations, requires obtaining a building permit for at least one residential unit within 24 months of the sale date. Briga applied for a permit in June 2021, but the full permit was only issued in December 2022, exceeding the 24-month deadline. The delay was attributed to the Ra'anana Municipality's policy against splitting permits, which initially rejected Briga's request for a separate permit for shoring and excavation, with a conditional approval from the planning committee only arriving in March 2022.

The district tax supervisor rejected Briga's refund request, stating the 24-month period had passed and he had no authority to extend it. Briga argued that the delay was due to municipal policy and that the Tax Authority had a "hidden position" from 2020, revealed only after a freedom of information request in 2024. This position suggested that a shoring and excavation permit could be considered a building permit for the purpose of the regulation. Briga claimed that if they had known about this stance, they would have insisted on splitting the permit with the municipality.

The Tax Authority countered that the 24-month deadline was a substantive condition with no room for extension, and that Briga had not received any permit, not even for excavation, within that timeframe. They also argued that their professional stance applied only to unique circumstances and that Briga's claims about what might have happened were speculative.

In its ruling, the Appeals Committee, chaired by Judge Avi Gormann, dismissed Briga's appeal entirely, ordering the company to pay 10,000 shekels in expenses. The committee determined that no official permit was obtained within the stipulated period and that a conditional approval does not constitute a "building permit" as required by law. Despite the dismissal, Judge Gormann strongly criticized the Tax Authority for not publishing its 2020 stance, stating that administrative bodies should not keep such positions secret for unreasonably long periods. However, he emphasized that this failure by the Tax Authority could not grant Briga eligibility for a tax benefit they did not meet the conditions for. The committee also clarified that shoring and excavation permits are not generally equivalent to building permits, except in rare cases of exceptionally large projects where local committees mandate permit splitting, a condition not met by Briga as the city engineer opposed the split.