Civil Appeal 7719/21 Saleh Hasarmeh v. Haifa Assessor

Justice A.  Stein:

The Appeals and the Outline of the Hearing

1. We have before us three appeals in which the hearing was consolidated:
2. Civil Appeal 7722/21: The appeal of Ittoren Sport Kiryat Shmona (2001) in the Tax Appeal (hereinafter: the Ittoren Company), a company that incorporates a professional soccer team from the Premier League, Ironi Kiryat Shmona (hereinafter: Ironi Kiryat Shmona or the team). This appeal attacks the judgment of the Nazareth District Court (Judge A.  Hod) which was given on August 16, 2021 in Tax Appeal No.  12510-02-15, in which the court rejected the group's appeal against the income tax assessments issued to it for the years 2009-2012, adopting the position of the respondent, the Safed Tax Assessor (hereinafter: the Tax Authority), on two issues: (1) the Group's employees are not entitled to a beneficiary settlement benefit under Section 11 of the Income Tax Ordinance [New Version], 5721-1961 (hereinafter, as applicable: the Income Tax Ordinance or the Ordinance andthe Beneficiary Settlement Benefit); and (2) housing, accommodation, nutrition, mobile phones, and team building events of the players, which are funded by the team, constitute a "benefit [...] from an employer" that the players received as part of their employment with the team, which must be taxed as part of their salary as stated in section 2(2)(a) of the Ordinance.

For the convenience of the readers of my judgment, in the discussion that follows: The Itorn company and the Kiryat Shmona municipal soccer team are one and the same.

1. Civil Appeal 7719/21: The appeal of a person who was a player of the team in the relevant tax years, Mr. Saleh Hasarmeh (hereinafter: Hasarmeh). Hasarmeh, who was born in Kfar Ba'ana, lived in this village during his childhood and youth.  Between the years 2006-2013, Hasarmeh played for Kiryat Shmona, and according to its procedures, during this period he lived alone in a rented apartment in the city of Kiryat Shmona (the rent was financed by the team).  During that time, Hasarmeh's partner and their four children lived in the village of Ba'ana.  This appeal attacks the judgment of the Nazareth District Court (Judge A.  Hod) which was given on August 16, 2021 in Tax Appeal 53405-02-17, in which the court rejected Hasarmeh's appeal against the income tax assessments issued to him for the years 2011-2012, adopting the position of the respondent, the Haifa Tax Assessor (hereinafter: the Tax Authority), who ruled that although Hasarmeh lived in Kiryat Shmona during the relevant years, He is not entitled to a beneficiary settlement benefit for the aforementioned years.

• Civil Appeal 7730/21: The appeal of a person who was a player of the team in the relevant tax years, Mr. Ahmed Abed (hereinafter: Abed). Abed, who was born in the city of Nazareth, lived in this city during his childhood and youth.  In the years 2011-2018, and then for seven months in 2020, Abed played for Kiryat Shmona, and in accordance with its procedures, during this period he lived alone in a rented apartment in the city of Kiryat Shmona (the rent was financed by the team).  This appeal attacks the judgment of the Nazareth District Court (Judge A.  Hod) which was given on August 16, 2021 in Tax Appeal 35539-12-17, in which the court rejected Abed's appeal against the income tax assessments for the years 2011-2013, adopting the position of the respondent, the Haifa Tax Assessor (hereinafter: the Tax Authority), who ruled that although Abed lived in Kiryat Shmona during the relevant years, He is not entitled to a beneficiary settlement benefit for the aforementioned years.

2. I will discuss and decide these appeals as follows:
3. First, I will discuss the definition of "resident in a particular locality" which was established in section 11 of the Income Tax Ordinance. In this discussion, I will also address the unique characteristics of a professional sports team when it comes to the center of life of the professional athlete who plays in it.  The general discussion of this entitlement will precede the discussion and decision on the affairs of Hasarmeh and Abed.
4. Next, I will discuss and decide whether the financing of housing, accommodation, nutrition and team-building events, which is given by the team to its players, constitutes a "benefit [...] from an employer", within the meaning of section 2(2)(a) of the Ordinance, which must be taxed as part of the salary of each player who received it. In this framework, I will first discuss the financing of housing and accommodation, since this funding is closely related to the actors' entitlement to the beneficiary settlement benefit - as will be explained below.  Next, I will discuss funding nutrition and team-building events for the team's players.

I will not hold a discussion about the mobile phones that the team provided to its players.  This is because in the summaries submitted to the trial court, the team abandoned its objection to the tax assessor's determination in the matter of the telephones and accepted his position that this is an employer's benefit, the value of which - as determined by it - should be credited to the salaries of the team's players and taxed accordingly as part of the salary (see: paragraphs 125-126 of the trial judgment in Tax Appeal 12510-02-15).  Itoran also did not appeal this component of the assessment before us, and therefore it will stand.

• Finally, I will discuss and decide on the fines that the Tax Authority imposed on the group and the group's request to exempt it from these fines.

3. Before I do so, I will note that after reviewing the writings that the parties placed before us, and after hearing at length their arguments in the hearing held before us on November 21, 2022, we recommended that they hold a dialogue with the aim of reaching, as much as possible, agreements on the questions in dispute. On January 10, 2023, the Tax Authority announced that the parties had not reached any agreements, and we asked for a ruling on the three appeals.
4. We were also asked by the Tax Authority to allow it to submit a supplementary argument regarding the financing of the players' accommodation expenses, despite the objections of the appellants. We will not be able to respond to this request, and it is hereby denied.  The parties received and took advantage of the opportunity to present before us all their arguments on the issues of appeals, and these arguments included a reference to the financing of accommodation expenses by the team and its implications for the taxation of the players' salaries.
5. Moreover, as I will explain later on, in light of the result I reached regarding the entitlement of the team's players to a beneficiary settlement benefit, the issue of financing their accommodation expenses in Kiryat Shmona is in any case superfluous. This is because the players' residence in Kiryat Shmona and their overnight stay in the city are part of the affiliations to the city on the basis of which I decided to recognize the players as those who moved their center of life to Kiryat Shmona and as a result who are entitled to a beneficiary settlement benefit - whenever they play for the Kiryat Shmona Ironi team and live in Kiryat Shmona during the training and games period.  As a result, the costs of housing and accommodation in Kiryat Shmona - which the team bore for its players in order to ensure that they live in the city during the period when games and training are taking place - are an employer's benefit that benefits the employee.  As mandated in section 2(2)(a) of the Income Tax Ordinance, this benefit must be added to the salary of each player who received it and taxed accordingly.

The procedural aspect: