Revisited: Is Zionism tax evasion? – analysis


Two years ago we ran an article on a court case, headed “Is Zionism tax evasion?” We concluded by saying “It remains to be seen whether the case will be appealed. Let’s hope so; Zionism is not tax evasion.” 

The case was indeed appealed to the Supreme Court, (Israel Daniel Amram vs Jerusalem 3 Assessing Officer, civil appeal 550/22 of August 29, 2023).

Main Facts

In 1999, a French individual set up a successful French company (Sephira SAS) that combined hardware and software to transmit financial data from medical smart cards to the central servers needed by insurance companies to pay health providers. The company grew to around 150 employees, serving 33,000 health professionals – 20% of the French market.

In 2003, the individual migrated from France to Israel and set up an Israeli company to conduct research and development and operate a call center in Israel.

In 2010, he withdrew around NIS 5 million from the Israeli company to help pay for five apartments in Jerusalem.

In 2011, to cover this debt, the individual sold his personal share (81%) of the relevant trademark to the Israeli company for NIS 41m.

MONEY IS a commodity like any other: Where is the problem? (credit: PXFUEL)

The Israeli company began charging the French company royalties for use of the trademark, €300,000-1,000,000 per year. It also charged for R&D at cost plus 50%-60%, around 40% more than justified by a transfer pricing study.

The Israeli company claimed tax breaks for a “preferred enterprise” and amortized the trademark under rules for goodwill, resulting in low Israeli taxation.

Main Issue

Was the individual’s trademark sale, using his Aliyah 10-year exemption for foreign source gains, an artificial or fictitious way of covering his debt to the company? If so, the Israel Tax Authority could impose tax on the royalties and cash withdrawals as personal dividend or salary income (45%-50% tax) and impose negligence fines.

District Court judgment:

Back in 2021, the District Court ruled that the trademark sale from the taxpayer’s French company to his Israeli company was artificial or fictitious. This was apparently because “there was no intention that the exemption would apply to a sale to a company controlled by the Oleh, which continued no enjoy the asset and exploit it” (Para.123). The exploitation referred to royalties and R&D charges, much of which were recorded in the French company as management fees according to a parallel French tax audit. Also, the trademark sale to the Israeli company for around NIS 41m. more than offset a loan of around NIS 5m. from the Israeli company to the Oleh to help him pay for five apartments in Jerusalem. The District Court, therefore, allowed the Israeli Tax Authority (ITA) to disregard the trademark sale and disregard the individual’s resulting credit balance at the Israeli company. This meant the ITA could tax what the individual withdrew from the Israeli company as salary or dividends and impose a 15% “deficiency fine” for “negligent” Israeli tax reporting.

Supreme Court judgement:

According to the Supreme Court: “On January 23, 2023 the appeal debate was held before us. On that date, at our recommendation, the appellant [the taxpayer] backed away from his challenge against the ruling [in the District Court] that there was an artificial or fictitious transaction and requested to focus his appeal on two other claims: that the reclassification of consideration he received from the [Israeli] company and the imposition of the deficiency fine. Therefore, we discuss the claims of the parties regarding these issues only”. Comment. The trademark existed and was registered in France…

The Supreme Court goes on to rule that the amounts totaling NIS 41m. paid to the individual, over four years in practice, could not possibly be salary, so they must be dividends (33% Israeli tax presumably, not up to 50%). This was based on an amendment subsequently enacted for “wallet” companies which gives priority to dividends over salary. The Court also upheld most of the deficiency fines for negligent tax reporting.


Unfortunately, the Supreme Court judgment exhibits a lack of transparency. Perhaps the taxpayer pushed the envelope with his tax planning, but he was clearly a brilliant engineer and businessperson who created value for the government and people of France. Israel needs immigrants like him. So why did the Supreme Court recommend he stop challenging the District Court ruling that the trademark sale was artificial or fictitious? For example, was there any understanding between the Israeli and French tax authorities in their parallel tax audits? The moral seems to be: don’t overdo your tax planning. But this was not the finest hour for anyone involved… As always, consult experienced tax advisers in each country at an early stage in specific cases.

[email protected] The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.