Summary
This article presents an absurd yet critical situation for every developer in the urban renewal sector. Although our firm achieved a precedent-setting victory in the "Neve Gad" case at the District Court, which established a clear ruling permitting developers to deduct VAT on tenant-related expenses (attorneys' fees, moving costs, etc.), the Israel Tax Authority chooses to broadly disregard the ruling. The Authority continues to issue assessments to developers and reject filings, pending the appeal hearing before the Supreme Court scheduled for February 2026.
In this situation, where the administrative authority acts contrary to the directive of the judicial authority (a "guiding precedent"), developers must carefully plan their steps to avoid forfeiting their right to tax refunds on the one hand, while avoiding unnecessary friction on the other. This article details a strategy for preserving rights (stopping the statute of limitations clock) through various reporting mechanisms under the VAT Law (Section 116 and Section 38A), depending on the invoice date and the identity of the taxpayer listed thereon.
Our message to developers is unequivocal: legal and economic justice is on your side, as confirmed by the District Court. However, until the Supreme Court renders its final decision, procedural wisdom must be exercised to ensure that VAT funds — amounting to millions of shekels per project — are not lost due to technical failures or statutory limitations.
