Summary
A new and complex ruling by the Jerusalem District Court in the case of Mobileye Technologies Vision Ltd., which was represented by Attorneys Shlomi Vaknin and Ariel Epstein of our firm, sharpens the boundaries regarding the taxation of employee benefits in the high-tech sector and beyond. The central issue: which services provided by the company to its employees qualify for input tax deduction, and which are deemed a "benefit" (Regulation 15a) subject to full VAT?
The case involved several components, and on some of them our firm achieved a significant victory against the position of the Tax Authority. The Court accepted our position and held that expenses for establishing and constructing welfare amenity areas (gym, spa, music room) in the company's new building, as well as expenses for accounting services (due diligence) in preparation for the Intel acquisition, are deductible as input tax. It was held that the construction of the building itself cannot be regarded as a "sale" to an employee subject to tax.
On the other hand, regarding the transportation services and pension advisory services, the Court adopted the stricter approach and held that since the employees are the "dominant beneficiaries" (due to reduced commute times and personal convenience), the VAT on these expenses is non-deductible. The ruling requires employers to draw a fine distinction between expenses that are "part of production" and those that constitute "employee welfare," yet it opens an important door for the recognition of construction expenses for welfare facilities.
