February 6, 2023
Israeli Supreme Court rules in favor of taxpayer for recovering input VAT on certain meal-related expenses
In October 2020, the Israeli District Court ruled in favor of Amdocs Israel Ltd. in a dispute revolving around the question of whether Amdocs was entitled to deduct the proportional part of the input tax in connection with the expenses of rent, electricity, water, property tax and management fees attributable to the dining/catering area, kitchens, storage and cooling rooms located in the buildings and complexes that it rented for its offices.
The VAT Authority ruled that Amdocs was not entitled to deduct these inputs and accordingly issued an input tax assessment of approximately NIS5 million, for the relevant proportion of input VAT. After the company's first instance appeal was rejected, it filed an appeal against the VAT Director's decision to the District Court.
The District Court’s decision, by Hon. Judge Bornstein, accepted Amdocs' appeal and stated, among other things, that "Regulation 15A must be applied to inputs that are distinctly and exclusively related to meals."
On 30 January 2023, after an appeal filed by the Israeli VAT Authority, the Israeli Supreme Court in a decision by the Hon. Justices D. Barak-Erez, A. Stein and H. Khabov, rejected the appeal in a short and decisive ruling, stated that after going back and considering the matters, the only option was to uphold the ruling of the District Court. The Justices also stated that the ruling is based on the interpretation of Regulation 15A and that they do not take a position regarding the possibility of changing the legal situation by way of amending the legislation, should the Tax authority seek to support such a change.
The ruling may have high significance in cases of deduction of input VAT where a "benefit to the employee" within the scope of Regulation 15A exists. Potential consequences on income tax and Social Insurance liabilities may apply as well.
Taxpayers should carry out a detailed examination of the consequences of the above ruling in all relevant cases.
For additional information with respect to this Alert, please contact the following:
EY Israel, Tel Aviv
Ernst & Young LLP, Israel Tax Desk, New York