Supreme Court Advises Haggag Group to Drop Tax Appeal Valued at NIS 50 Million
Translated & summarized from N12 by baba
The Supreme Court has advised the Haggag real estate group to drop an appeal regarding a NIS 50 million tax saving from a 2011 company acquisition. A district court previously ruled the purchase of Regency Hotel Jerusalem was an artificial transaction to reduce taxes. The group sought to use NIS 233 million in accumulated losses, but the court found no valid commercial reason for the purchase. Haggag Group must respond to the court's recommendation by Thursday.
The story in 5 lines · by baba
- Supreme Court urged Haggag Group to drop NIS 50 million tax appeal over Regency Hotel purchase.
- District Court previously deemed the 2011 acquisition an artificial transaction for tax reduction.
- Haggag Group sought to use NIS 233 million in accumulated losses from Regency Hotel.
- Justices cited lack of commercial rationale and Haggag's prior conflicting claims on losses.
- Haggag Group must respond to the court's recommendation by Thursday, October 29th.
The Supreme Court has recommended that the Haggag real estate group abandon its appeal concerning the acquisition of Regency Hotel Jerusalem, a case involving a potential NIS 50 million tax saving. The group had sought to utilize NIS 233 million in accumulated losses from the company, which they purchased in 2011. Four years ago, Jerusalem District Court Judge Avigdor Dorot ruled that the acquisition was an artificial transaction designed for improper tax reduction.
The Haggag group is expected to respond by this Thursday to the recommendation from Justices Ofer Groskopf, Gila Kenfy-Steinitz, and Ruth Ronen. Regency Hotel Jerusalem, which previously owned the Hyatt Hotel on Mount Scopus and sold it in 2010 for $45 million, became a shell company. It was sold for NIS 8 million, and Haggag Group acquired it a year later for NIS 18.6 million.
At the time of the purchase, Regency had accumulated tax losses that Haggag Group intended to use to reduce its tax liability. The Jerusalem Tax Assessor 1 refused this, and Dorot dismissed the group's appeal. Dorot upheld the tax assessor's position that Regency could not claim the accumulated losses amounted to NIS 233 million, noting that Haggag Group had previously argued the losses were only NIS 18 million in a class-action lawsuit regarding the acquisition offer.
While this discrepancy was sufficient to reject the appeal, Dorot also addressed the merits, concluding that the primary motive for Haggag Group's purchase of Regency was to offset its accumulated losses, with no significant commercial rationale. The judge noted that Regency had no assets and that Haggag Group had not pursued other available shell companies. Furthermore, the group's stated intention to integrate hotel operations into Regency and use it for public capital raising did not materialize; instead, the company was delisted from trading.
Dorot affirmed that the acquisition was fundamentally driven by a desire for tax benefits and that Haggag Group failed to demonstrate equivalent commercial reasons. He also approved the imposition of a deficit penalty on the company, the amount of which was not specified. Attorneys Shlomi Moalem and Amit Glick represented the Haggag group, while Attorney Roi Cohen represented the tax assessor.
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