High Court of Justice 35810-08-25 Union of Representatives v. Knesset of Israel

High Court of Justice 35810-08-25
High Court of Justice 6251-11-25

Judgment

Judge Ofer Grosskopf:

The petitions before us concern the question of the constitutional validity of the Economic Efficiency Law (Legislative Amendments to Achieve the Budget Targets for the 2025 Budget Year) (Taxation of Non-Disputed Profits), 5785-2024, also known as Amendment No. 277 to the Income Tax Ordinance (hereinafter also: The Law or Undistributed Profits Taxation Law).  The purpose of the law, the importance of which is indisputable, is to reduce the number of cases in which Abuse The tax regime that applies to companies for the purpose of deferring the payment of tax for an extended period of time.  The main dispute between the parties relates to the way in which we chose to deal with this phenomenon - the petitioners in the two petitions (hereinafter together): The Petitioners andThe Petitions, respectively) are of the opinion, on the one hand, that the arrangements set out in the law for the purpose of achieving this goal have many flaws, the result of which is that this is a law that not only does not fulfill its purpose, but also leads to significant harm to protected basic rights and the Israeli economy.  The state, on the other hand, believes that the law is very beneficial, as it will lead to a significant increase in its revenues, along with a reduction in the incentive to abuse the two-stage tax regime that applies to companies.

The Ottoman Settlement [Old Version] 1916        For the convenience of the reader, I will note that the law has already established two main arrangements that will apply to a few companies (companies controlled by up to five people, and are not subsidiaries or companies in which the public has a real interest): The first, is intended to expand the range of cases in which the company's income will be attributed to the individuals who hold it (as detailed In section 62A to the Income Tax Ordinance [New Version] (hereinafter: The Command or Income Tax Ordinance)); The second, establishes a new tax of 2% imposed on profits that the company has chosen not to distribute as a dividend to its shareholders (as detailed Sections 81A-81F to the Ordinance).  Behind this simplistic description, and as often happens when it comes to tax law, there are many pages of complex and complex legislation, consisting of definitions, references, conditions, exceptions, and more.  The presentation of the matter from now on will be done in accordance with the level of detail required for the purpose of deciding the petitions.  Where it is possible to condense and simplify, things will be presented from a bird's eye view and in the language of human beings; But in places where it is necessary to broaden and deepen the gaze, there will be no choice but to dive into the quick, demanding swamp that it is Income Tax Ordinance.