Objection to a VAT Assessment

An objection to a VAT assessment is filed in writing, with supporting reasons, to the VAT Director within 30 days of service of the assessment notice (Section 82(a) of the VAT Law). The Director may uphold, reduce, or increase the assessment. If no decision is made within one year of filing, the objection is deemed accepted (Section 82(d)). The decision on the objection may be appealed to the District Court within 60 days.

Send us your assessment notice. We will calculate your deadline and review the grounds on which the assessment is based.

In most cases, as soon as the assessment notice arrives, because the 30-day period starts running from the date of service. These are the most common situations:

• You received an assessment notice under Section 77, in which the inspector determined the tax according to his best judgment rather than based on the return you filed.

• The assessment is based on disqualification of books, for example due to an unrecorded receipt (Section 77A) or an invoice that the Director claims was issued unlawfully (Section 77B).

• The assessment notice does not explain how the amount was calculated, even though the law requires that the grounds be specified (Section 77(c)).

• The assessment relates to a return filed more than 5 years ago (Section 77(b)).

• The decision on the objection introduced a new ground that was not included in the assessment.

• Your objection was denied, and you are considering an appeal to the District Court.

A summons for questioning under caution is a criminal proceeding governed by different rules, and it is explained on the Representation in VAT Investigations.

The procedure is governed by Chapter 12 of the Value Added Tax Law, 5736-1975, and the Rules of Procedure in Appeals.

The Assessment

• The Director may assess the tax according to his best judgment when the return is incomplete, inaccurate, or unsupported by accounting records (Section 77(a)), within 5 years of the filing of the return (Section 77(b)).

• When no return has been filed at all, the Director issues a "tax determination." No objection may be filed against it, and it is automatically voided upon filing the return (Section 76).

The Objection

• An objection must be filed within 30 days. The Director may permit a later filing for special reasons (Section 82(a)).

• The person who prepared the assessment may not decide the objection against it (Section 82(e)).

• The matter may be concluded by agreement, in which case the assessment is amended accordingly. Absent an agreement, the Director decides and issues a reasoned decision (Sections 82(b) and 82(c)).

• During the objection period, up to half of the disputed amount need not be paid (Section 91(a)(1)).

The Appeal

• An appeal is filed with the District Court (Section 83(a)) within 60 days of service of the decision on the objection (Regulation 2(a) of the Value Added Tax and Purchase Tax (Rules of Procedure in Appeals) Regulations, 5736-1976). The Director has no authority to extend this deadline (Section 116(a)).

• The court may uphold, reduce, increase, or cancel the assessment (Section 83(e)).

• A decision to disqualify books under Section 77A or 77B is not subject to an objection. It is appealed directly to the District Court within 60 days.

1. You send us the assessment notice, the returns for the relevant period, correspondence with the inspector, and meeting summaries, if any. We calculate the deadline for filing the objection.

2. We examine the assessment itself: whether it was issued within the 5-year period, whether it is properly reasoned, and whether it is based on a disqualification of books that must be appealed separately.

3. We reconstruct the inspector's calculation. This reveals whether the dispute concerns the computation, the facts, or the interpretation of the law.

4. We file a reasoned objection with supporting documents and conduct the discussions with the official deciding the objection. Where possible, we reach an agreement under Section 82(b).

5. If the decision is unacceptable to you, we file an appeal with the District Court within 60 days and represent you in the proceedings.

Three appeals against VAT assessments that were accepted by the District Court.

MGDS: New Ground in the Objection Decision, TA 30398-12-11 (January 16, 2014)

The VAT Director imposed double tax on the appellants for credit notes issued after the cancellation of a real estate transaction, and in the decision on the objection changed the basis for the assessment. The court held that this deprived the appellants of the opportunity to address the new ground, and voided the assessments, the book-disqualification notice, and the double-tax demand. The court further held that if the Director believed the transactions were artificial, he should have acted under Section 138 of the Law. The MGDS judgment.

In the same vein, the Tel Aviv District Court held in Ram Pal (TA 27997-12-23, October 10, 2024) that the Director may not issue, within a decision on an objection to an output-tax assessment, a new input-tax assessment, and accepted the appeal on a preliminary basis. The Ram Pal judgment.

A.C.Y. Real Estate (Yochman): Assessment of Approx. NIS 1.5 Million, TA 68651-05-22 (May 9, 2024)

The Director argued that the allocation of building rights under TAMA 38 between the company and its shareholders constituted a separate transaction, and issued an assessment that, following the objection decision, amounted to approximately NIS 1.48 million in tax principal. Judge Yardena Seroussi of the Tel Aviv District Court held that the rights had been allocated to the shareholders already in the joint purchase agreement, and that the assessment was in any event time-barred because it was issued more than 5 years after the return was filed. Adv. Shlomi Vaknin and Adv. Ariel Epstein represented the company. The Globes article on the Yochman case.

Hagshama: Assessment of Approx. NIS 9 Million, TA 21657-11-19 (July 10, 2022)

The assessment imposed full VAT on hostess services the company provided to foreign cosmetics companies at the duty-free shop. The Tel Aviv District Court held that the zero rate applied under the proviso of Section 30(a)(5) of the Law. The appeal was accepted on an assessment in dispute of approximately NIS 9 million in tax principal, and the VAT Director was required to issue amended assessments. Adv. Shlomi Vaknin represented the company. The Hagshama judgment.

The objections and appeals are led by Adv. and CPA Shlomi Vaknin together with his firm's team. He served for nearly a decade as a national inspector in the Professional Division of VAT at the Israel Tax Authority headquarters, and subsequently spent 18 years as a senior partner at a tax law firm, before establishing his own firm in 2024.