Businessman Gad Za'evi Loses Tax Appeal, Ordered to Pay 15% Penalty
Translated & summarized from Calcalist by baba
Businessman Gad Za'evi must pay a 15% penalty and tax on NIS 65 million in capital gains from selling Overseas Commerce shares, a Tel Aviv court ruled. The court rejected Za'evi Transport's claims of offsetting losses, calling them fabricated to evade taxes. The ruling criticized the company's tax filings and ordered it to pay NIS 75,000 in legal costs.
The story in 5 lines · by baba
- Businessman Gad Za'evi must pay a 15% penalty on NIS 65 million in capital gains.
- A Tel Aviv court rejected Za'evi Transport's claims of offsetting losses as fabricated.
- The court ruled the alleged losses were created retroactively to evade taxes.
- Za'evi Transport is ordered to pay NIS 75,000 in legal costs to the state.
- The ruling noted concerns about controlling shareholders manipulating losses.
Businessman Gad Za'evi will pay a 15% deficit tax and penalty on NIS 65 million in capital gains from selling his shares in Overseas Commerce, the Tel Aviv District Court ruled this week. Judge Yardenna Sarusi accepted the Central District Attorney's Office's (Civil) argument that Za'evi Transport, the company that sold the shares, was not entitled to offset the capital gains with losses it claimed. The judge determined that the alleged losses were fabricated "out of thin air" retroactively to evade paying approximately 25% tax on the actual capital gains.
Za'evi Transport, part of the Gad Za'evi group, had sought to offset significant capital gains from selling its shares in Overseas Commerce against capital losses and bad debts it retrospectively attributed to itself. Between 2016 and 2018, Za'evi Transport sold its holdings in Overseas Commerce, realizing about NIS 65 million in capital gains. The company claimed losses from two sources: a bank's enforcement of a guarantee it provided for the parent company's debt, which was retroactively assigned to Za'evi Transport; and a capital loss from writing off an investment in another company within the Za'evi group.
Had these claims been accepted, Za'evi Transport would not have had to pay tax on its capital gains, as taxpayers can offset profits with losses. The state, represented by attorney Yael Hershman-Axen, argued these offset claims were artificial. The court rejected both types of capital loss claims, deeming them unsubstantiated and designed solely to illegally offset the capital gains. "When dealing with a group of companies with a single controlling shareholder, there is a real concern that the controlling shareholder will channel capital losses to profitable companies in order to offset the resulting capital gains," the ruling stated.
Regarding the write-off of an investment in an affiliated company, the court found that the investment's value (and the resulting loss) was not proven, suggesting the purchase was recorded solely in anticipation of funds from the Overseas Commerce share sale. The court criticized the company's tax filings and imposed the 15% deficit penalty on the tax owed, along with NIS 75,000 in legal costs for the state.