Supreme Court Advises Haggag Group to Drop NIS 50 Million Tax Appeal

The Supreme Court has recommended that the Haggag real estate group abandon its appeal concerning the acquisition of Regency Hotel Company. The Haggag Group had sought to utilize accumulated losses of NIS 233 million from the company, which would have resulted in a tax saving of NIS 50 million. Four years ago, Jerusalem District Court Judge Avigdor Dorot ruled that the company's acquisition was an artificial transaction aimed at improper tax reduction.

The group is expected to respond by Thursday, October 29, 2026, to the proposal from Justices Ofer Grosskopf, Gila Kenfy-Steinholtz, and Ruth Ronen. Regency Hotel Jerusalem, which previously owned the Hyatt Hotel on Mount Scopus and sold it in 2010 to Dan Hotels for $45 million, became a shell company. It was sold for NIS 8 million, and a year later, the Haggag company purchased it for NIS 18.6 million.

At the time of the purchase, Regency had accumulated tax losses that Haggag intended to use to reduce its tax liability. The Jerusalem 1 tax assessor refused this, and Dorot dismissed the company's appeal. Dorot accepted the tax assessor's position that Regency, now owned by Haggag, could not claim the accumulated losses totaled NIS 233 million. Previously, a class-action lawsuit was filed against the company regarding its public tender offer, alleging the compensation was too low given its NIS 220 million in accumulated tax losses. The company countered that the losses were only NIS 18 million, a position Dorot stated it could not later contradict.

Although this was sufficient to dismiss the appeal, Dorot also addressed the substance of the case, particularly whether the transaction was artificial. He concluded it was, stating the tax assessor proved the primary motive for Haggag's acquisition of Regency was the use of its accumulated losses, with no significant commercial rationale. The company had no assets, and Haggag could have acquired other available shell companies but did not. Haggag's claims that it would introduce hotel operations and raise capital from the public through Regency were not realized; instead, it introduced no operations and delisted the company from trading.

Dorot summarized that the acquisition was fundamentally driven by the fiscal motive of offsetting accumulated losses, and the company failed to prove equivalent commercial reasons. He determined the acquisition's purpose was improper tax reduction and upheld the imposition of a deficit penalty, the amount of which was not specified. Attorneys Shlomi Moalem and Amit Glick represented the company, while Attorney Roi Cohen represented the tax assessor.