What takes precedence: certainty in tax law or doing justice to a specific taxpayer? In yesterday's Supreme Court ruling on taxation of the money stolen by former Minister of Finance Avraham Hirschson, the court gave a clear answer: certainty, according to a tax expert. The court ruled that Hirschson, who was convicted of stealing from the National Workers Labor Federation, and another person convicted of stealing from Maccabi Health Services, could not deduct their losses resulting from restitution of the stolen money to the victims in the course of the criminal proceedings against them from their profits in previous years. What the court did was to eliminate the possibility of deducting current losses retroactively from previous profits.
Hirschson and Ilana Damari were convicted in different criminal cases of theft of substantial amounts of money. The amounts stolen were returned to the victims of the crime in the course of the criminal proceedings against them. In the proceeding that they conducted against the Israel Tax Authority, they argued that the money they had stolen and given back should not be regarded as taxable income, and if it were to be regarded as such, they should be allowed to deduct the tax charged for it as an expense, or to deduct the money paid back as a loss (even if it was returned late) from profits in previous years - in other words, to deduct it retroactively.
The dispute reached the Supreme Court, which in 2015 accepted the views of Hirschson and Damari. The Tax Authority, however, petitioned for a rehearing on the issue. The Supreme Court agreed to hear the question again with seven justices, and a majority yesterday reversed the original ruling, saying that losses from restituted stolen money could not be deducted, despite the fact that Hirschson and Damari had not kept the money.
Adhering to the letter of the law
Former division manager-senior supervisor at the Tax Authority large enterprises income tax assessing office Advocate Noa Lev Goldstein, who manages the Eitan, Mehulal & Sadot law firm's tax department, says, "The main message from the ruling faithfully reflects the legal heritage left by retiring Supreme Court President Miriam Naor, including in interpretation of tax law: adherence to the letter of the law should be preferred in order to achieve the aim of stability, certainty, and efficiency in tax law, even at the expense of cases liable to cause a feeling of injustice."
Published by Globes [online], Israel Business News - www.globes-online.com - on September 13, 2017
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