Tax Authority Criticized for Withholding Secret Stance in Tax Benefit Case
Translated & summarized from Globes by baba
An Israeli appeals committee rejected a construction company's bid for a tax refund, ruling that a building permit was not obtained within the required 24-month period. The committee criticized the Tax Authority for withholding a position paper that might have supported the company's claim. Despite the criticism, the court upheld the strict deadline, stating the company failed to meet the conditions for the tax benefit.
The story in 5 lines · by baba
- An appeals committee denied a construction company a tax refund due to missing a 24-month permit deadline.
- The Tax Authority was criticized for withholding a potentially favorable position paper for years.
- The company argued municipal policy and the Tax Authority's hidden stance caused the delay.
- A conditional approval and a shoring permit were deemed insufficient for the tax benefit.
- The company was ordered to pay NIS 10,000 in expenses for the dismissed appeal.
An Israeli appeals committee has ruled against a construction company seeking a tax refund, upholding the Tax Authority's denial of a partial refund on purchase tax. The company, Beriga, had purchased land in southern Ra'anana in June 2020 for a project of approximately 150 housing units and paid 6% purchase tax. They sought a refund of one-sixth of this tax, amounting to about NIS 1.06 million.
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. Beriga applied for a permit in June 2021, but the full permit was only granted 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 Beriga's request for a separate permit for shoring and excavation. A conditional approval was received in March 2022.
The company argued it had advanced the project without delay and that the municipality's policy caused the holdup. They also revealed that the Tax Authority had a "hidden stance," documented in a 2020 tax ruling and a 2024 position paper obtained through a freedom of information request, suggesting that a shoring and excavation permit could be considered a building permit for the regulation's purpose. Beriga claimed that if they had known this, they would have insisted on splitting the permit with the municipality.
The Tax Authority countered that the 24-month period is a substantive threshold requirement with no provision for extension, and that no permit, not even for excavation, was issued within that timeframe. They also argued that their professional stance applied only to unique circumstances not present in this case.
In its ruling, the Appeals Committee, chaired by Judge Avi Gormann, dismissed the appeal entirely and ordered the company to pay NIS 10,000 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 rejecting the appeal, the judge strongly criticized the Tax Authority for not publicly disclosing its 2020 position for an unreasonable period, stating that administrative authorities should not keep such stances secret. However, the court emphasized that this failing by the Tax Authority did not grant the taxpayer eligibility for a 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 authorities mandate permit splitting, a condition not met by Beriga as the Ra'anana city engineer opposed the split.