TA 68651-05-22 A.Tz.Y Real Estate Ltd. v. VAT Director Tel Aviv
TA 68651-05-22 A.Tz.Y Real Estate Ltd. v. VAT Director Tel Aviv (Nevo 09.05.2024):
The court accepted the appellant's appeal against the VAT Director's decision to impose tax on a transaction that, according to the VAT Director, had allegedly taken place between the appellant and its shareholders.
The appellant and its shareholders purchased a real estate property and regulated, in an agreement signed between them prior to the purchase, the manner of allocation of rights in the property (50:50) and payment of the consideration (80:20), with all future rights, including abstract rights that would accrue in the future under TAMA, being exclusively allocated to the shareholders.
VAT Tel Aviv determined that, in light of the disparity between the allocation of payment for the real estate between the parties (a ratio of 80:20) and the allocation of construction costs between them (a ratio of 50:50), and despite the existence of an agreement regulating the allocation between them, an additional transaction had taken place, subject to VAT, due to the sale of the appellant's share in the rights to the shareholders.
The court rejected the VAT authority's position and held that, according to the agreement executed between the parties prior to the purchase of the real estate, the future building rights acquired from the Israel Land Authority (RMI) were exclusively allocated to the shareholders, and therefore no transaction involving the sale of rights from the company to its shareholders had occurred. Moreover, even if the real estate had been purchased in co-ownership, the process of allocation and partition, in and of itself, does not constitute a transaction under the VAT Law.
The court clarified that even if it had accepted the VAT authority's rejected position — that a transaction involving the sale of rights from the company to its shareholders had allegedly taken place — the tax liability for such a transaction would be time-barred, since it allegedly occurred at the time the allocation agreement between the company and its owners was signed, prior to the purchase of the property from the Israel Land Authority.
