Globes on the Yochman Case: Appeal Against ~NIS 1.5 Million VAT Demand Accepted

Globes reported in May 2024 that the Tel Aviv District Court accepted the appeal of A.T.I. Mekark'in (Real Estate), a company owned by CPA Tzvi Yochman and his wife, against a VAT assessment of approximately NIS 1.48 million (principal), and ordered the Israel Tax Authority to pay court costs of NIS 95,000. According to the article, the appeal was filed by attorneys Shlomi Vaknin and Ariel Epstein.

In 2015, the Yochman couple and the company jointly entered a tender by the Israel Land Authority for a plot of approximately 1,191 sq. m. on Shimshon Street in Jerusalem, and won with a bid of approximately NIS 25.5 million plus VAT. According to an appraiser's opinion, the company acquired the building designated for preservation and part of the vested building rights for commercial use, while the family acquired an additional portion of the vested rights and the potential building rights under Plan 10038 — Jerusalem's equivalent of TAMA 38 — for private use. The cost was split at a ratio of 80% to the company and 20% to the family, and only the company deducted input tax.

The family subsequently obtained a permit for an additional 608 sq. m. under TAMA 38 and paid a betterment levy of NIS 182,000 on its own. In 2019, the parties signed a joint construction agreement under which each side bears 50% of the costs. In December 2020, the Tel Aviv VAT director issued the company an assessment of approximately NIS 1.38 million, arguing that the gap between the 80:20 and 50:50 ratios indicated that the company had sold 30% of the rights to the family. The objection was rejected and the amount was increased to NIS 1.48 million.

The company argued that the family had acquired the full TAMA rights already in the purchase from the ILA, and that their subsequent realization did not constitute a sale. The VAT director argued this was tax planning designed to evade payment. Judge Yardena Seroussi rejected all of the Authority's arguments. According to the article, she held that the building rights sold in the tender included the potential rights as well, and that the 80:20 ratio was an allocation of the purchase cost based on value at that time rather than an allocation of floor area, since a conditional right is worth less than a vested right.

The judge added a cautionary note: agreements between related parties should be examined with suspicion, but the Authority must do so in real time and not circumvent the statute of limitations through a later transaction.