Finally, and as to the test of proportionality in the narrow sense, the Petitioners are of the opinion that the damage that will be caused as a result of the Law is serious, while its benefit, as detailed above, is questionable. In the meantime, it was argued that in the framework of the legislative process of the law, there was no orderly process of quantifying the damages that would be caused as a result of the law. Therefore, even if the law leads to an increase in state revenues in the short term, it is argued that in the long term the economic damage caused will far outweigh the benefits inherent in it.
- The petition in High Court of Justice case 6251-11-25 [Nevo] (hereinafter: the second petition) is more limited and focuses on the arrangement set out in sections 81a-81f of the Ordinance, i.e., the tax on excess profits. The petitioners in this petition are a minority company that has been engaged for many years in the initiation, planning, construction, rental and operation of real estate ventures (hereinafter: the Petitioning Company), and some of its shareholders (directly and concurrently). Hereinafter: the petitioners in the second petition). They claim that the law discriminates against companies like the petitioning company contrary to the purpose for which it was enacted. Therefore, we were asked to order the annulment of the said sections; "Read into the Law" is an exception that states that the Law does not apply to a few companies of the type of the Petitioning Company; or to make a "conceptual separation" and declare that the law does not apply to a few companies of the type of the petitioning company. We were further requested, to the extent that the petition is accepted but it is decided to postpone the date of application of the decision, that it was determined that the said remedy would apply immediately to the petitioners in the second petition in light of their "unique contribution to the enforcement of constitutional law".
In the petition, it was explained that the business model of the petitioning company is based on the construction of buildings and their rental for commercial purposes, and that this is a business activity that can only be carried out through a corporation. In doing so, it was argued that although this is a productive business activity that contributes to the economy, and that the tax deferral allowed by the two-stage model is essential for its activity; In practice, in light of the inclusion of real estate assets of the type held by the Petitioner Company (commercial rental real estate assets) in the definition of the term "special properties" In section 81c(a)(3) According to the Ordinance, it is required to pay excess profits tax on almost all of its assets. This was emphasized, despite the fact that the purpose of the law was to provide a solution to the phenomenon of wallet companies, which are not part of their population, and despite the fact that a few similar companies (for example, companies that build residences) are exempt from paying tax. Against the background of the aforesaid, the petitioners in the second petition claim that their right to property, freedom of occupation and equality has been significantly violated, in a manner that does not meet the conditions of the limitation clause.
- The state, on the other hand, is of the opinion that the first petition should be dismissed out of hand, due to the delay in its filing, and on the merits of the matter, in the absence of grounds to intervene in the law. Hence, the state's position also has no justification for granting the request for an interim injunction. It should be noted that the State's position, as presented by the Government Respondents (Respondents 3-7), was acceptable to the Knesset (Respondents 1-2), and therefore it sought to join what was stated therein (hence the reference to it as the State's position).
- First, and as a threshold argument, the state argues that the first petition was filed with a delay that justifies its dismissal in limine. Thus, since the law was approved on December 31, 2024, it came into effect the next day, while the first petition was filed only on August 13, 2025 (about seven and a half months from the date of its approval and entry into force); Whereas during the period between the date of the law's entry into force and the date of its submission, the various players in the market began to plan their steps and change their situation (as evidence, the state noted that 1,200 applications were submitted to apply the transition provision), and the state collected significant sums of money; and since in the circumstances of the case there is no concern of a violation of the principle of the rule of law.
- On the merits of the matter, the State is of the opinion, taking into account the criteria for intervention in primary legislation of the Knesset in general, and in legislation dealing with economic issues in particular, that petitions should be dismissed in the absence of grounds for constitutional intervention. First, it was argued that the arrangements set out in the law do not infringe on protected human rights, and therefore there is no need to examine the limitation clause at all. With regard to the right to property, the state's position is that imposing a tax, in and of itself, does not infringe on the constitutional right to property. In this context, it was clarified that contrary to what was claimed, this is a law with prospective applicability, or at most, with permissible active characteristics. This is a tax imposed on accumulated capital (the company's surplus profits) from 2025 onwards, and its purpose is to direct behavior with a forward-looking view. With regard to the right to freedom of occupation, it was argued that the Petitioners' arguments regarding the possible harm that will be caused to a few companies are inconsistent with the assessment that the Law will apply mainly to companies that serve as wallet companies, i.e., those that do not carry out real economic activity that can be harmed. Finally, and with regard to the right to equality, the state explained that the distinction between a few companies and other companies is based on a relevant difference, since it is the characteristics of the few companies that allow them to be used as wallet companies. In any event, the state clarified that even if the distinction between the various companies is not based on a relevant difference, the circumstances of the case do not infringe on the right to equality in the constitutional sense.
- Even under the assumption that there is justification for continuing to the second stage of the constitutional examination, according to the state's position, the law clearly passes the tests of the limitation clause. As for the purpose of the law, the state stated that its goals are to permanently increase the state's tax revenues, in an efficient and just manner; and to prevent companies from taking advantage of the tax benefit that choose not to distribute the profits they have accumulated over a long period of time, without using them for the purpose of increasing their real activity. This is, according to the state's approach, a proper economic purpose, and in fact, there is no dispute about this.
Similarly, the state believes that the law passes the three tests of proportionality. As for the rational connection test, it was argued that the law is expected to increase the state's tax revenues, as well as reduce the incentive to abuse the two-stage model. With regard to the less harmful intermediate test, the State explained that the team for examining undivided profits examined eight different alternatives for the purpose of dealing with the wallet companies, including the alternatives referred to by the Petitioners, and found that the alternatives set forth in the Law were preferable; As the Knesset also believed. In the meantime, it was explained that the various exemption provisions that were set out in the framework of the law were deliberately determined in a broad manner, with the aim that the law would not apply to a few companies to which there is a high chance that it would be unjustified to apply the law. The state also noted that the use of the tools contained in the Ordinance was found to be insufficiently effective. With regard to the arguments regarding the excessive applicability of the arrangement, it was argued, at the outset, that even if this is true, this does not establish grounds for constitutional intervention. In any event, the state emphasized that within the framework of the law, many arrangements were made to prevent the application of the permit, first and foremost the protections that were established In section 81c(a) to the command. The state estimates, based on data from 2022, that only about 20,000 of the roughly 180,000 companies will be required to pay the excess profits tax. Of this group, it is estimated that 80% of the tax collected will come from only a few 5,000 companies. Similarly, it was noted that the assessment is that Section 62A(A1) The Ordinance will apply to about 15,000 small companies. Finally, and with regard to the test of proportionality in the narrow sense, it was explained that even if there is a violation of basic rights, it is not significant; On the other hand, the benefit that is expected to arise from the law is very significant.
- As to the argument that there is justification for extending the duration of the transition order regarding the liquidation of a minority company, the state noted that even if there are companies that are unable to implement the transition order within the set period, this does not justify a remedy of extending it for an additional period. The state clarified that the determination of the benefit in the transitional provision was based, inter alia, on the assumption that it was limited to a certain period of time. In these circumstances, intervening in one aspect of the transitional provision (the period of time it will apply) without changing the nature of the benefit, will lead to a violation of the balance chosen by the legislature.
- It should be noted that although the state's position was submitted before I decided that the hearing of the second petition would take place together with the first petition, in the framework of a reference submitted on its behalf on November 12, 2025 regarding the relationship between the petitions, the state noted that in its position the second petition should also be rejected due to an even heavier delay in its filing. On the merits of the matter as well, and while it was clarified that this is not an exhaustive argument on the matter, it was noted that the application of the Law to the real estate sector in which the Petitioning Company operates was made by a conscious decision of the legislature, after discussions held on this matter specifically. Moreover, it was noted that the possibility of distributing 6% of the amount of accumulated profits instead of paying the excess profits tax was formulated, inter alia, in order to provide a solution to the unique difficulties of real estate companies such as the Petitioning Company.
Discussion and Decision
- After reviewing the arguments of the parties in the written material, and hearing their arguments at length orally in the hearing before us, I have reached the conclusion that the petitions should be dismissed; And this is what I would recommend to my friend and colleague that we do.
- As clarified above, the focus of the petitions in this case is the question of the constitutional validity of the Undistributed Profits Taxation Law. As is well known, in petitions such as this, in which a remedy is sought to annul a primary legislation passed by the Knesset, the court must act with caution and restraint (see, many examples: High Court of Justice 6133/14 Gurevitz v. Knesset of Israel, paragraph 38 [Nevo] (March 26, 2015); High Court of Justice 62792-01-25 Mansour v. Ministry of Health, para. 7 [Nevo] (June 17, 2025)). Our role in this context is not to examine the wisdom of the legislature or the effectiveness of the arrangements set out in the relevant provisions of the law, but rather to examine the question of the constitutionality of the arrangement in view of the rights violated (High Court of Justice 1715/97 Israel Investment Managers Association v. Minister of Finance, IsrSC 51(4) 367, 386 (1997); High Court of Justice 9333/03 Kaniel v. Government of Israel, IsrSC 60(1) 277, 288 (2005) (hereinafter: the Kaniel case)). This is even more true when we are dealing with a provision of law that deals with complex issues of the economy and the economy, as in our case (High Court of Justice 4406/16 Association of Banks in Israel (NPO) v. Knesset of Israel, para. 33 [Nevo] (September 29, 2016) (hereinafter: the Association of Banks case); High Court of Justice 334/21 Hadassah Medical Association v. Knesset of Israel, para. 34 [Nevo] (November 23, 2021); High Court of Justice 517/24 Yermaev v. Knesset, para. 9 [Nevo] (July 24, 2024)). In view of these criteria, I do not believe that a factual or legal basis has been laid before us that justifies our intervention. Far from it.
- Before discussing the constitutional questions on the agenda, I would like to briefly address the claim of delay raised by the state. Indeed, the duty imposed on the petitioner to file his petition with the appropriate speed also applies when it comes to a petition seeking to bring about the annulment of a provision of the law (HCJ 6411/16 The National Committee for Heads of Local Authorities v. Knesset of Israel, paragraph 46 [Nevo] (June 19, 2018) (hereinafter: the National Committee case); High Court of Justice 2938/20 Lior Caspi Law Firm v. Knesset, paragraph 6 [Nevo] (September 2, 2020)). In our case, about seven and a half months passed from the date of publication of the law in the Official Gazette and its entry into force until the filing of the first petition. As for the second petition, this is an even more significant period of time of about ten months. During this period, many entities in the economy began to prepare for the implementation of the law's provisions, and by virtue of it, significant sums entered the state coffers, which, according to the preliminary response submitted on its behalf, were taken into account when preparing the budget for 2025. Hence, the conduct of the petitioners in both petitions raises considerable difficulties. Nevertheless, taking into account the nature of the questions that arise in the framework of the petitions at hand, I am of the opinion that it is justified to discuss them despite the delay that persisted in their filing (the National Committee case, at paragraph 46). I will now turn to this work.
- As is well known, the constitutional examination consists of three stages. In the first stage, the court must examine whether the law under test leads to a violation of a protected constitutional right. If the answer to this is yes, in the second stage, the court must examine whether it is an infringement that meets the conditions of the limitation clause. If the answer to this question is no, in the third and final stage, it is necessary to examine what is the appropriate remedy in the circumstances of the case (see Mini-Many: High Court of Justice 9134/12 Gavish v. Knesset, paragraph 25 of the judgment of President Miriam Naor [Nevo] (April 21, 2016) (hereinafter: the Gavish case); High Court of Justice 4343/19 Yes to the Elderly - For the Advancement of the Rights of the Elderly v. Knesset of Israel, paragraph 11 of the judgment of Vice-President Neil Hendel [Nevo] (March 16, 2022)).
Stage 1: Does the law violate a protected constitutional right?
- The first stage of constitutional review is the stage of infringement of the right. At this stage, the court must examine whether the arrangements set forth in the law lead to a violation of a protected constitutional right. Insofar as such harm exists, and in this regard, in my view, an injury that is not marginal or negligible is sufficient (for this position, see: High Court of Justice 3434/96 Hoffenung v. Speaker of the Knesset, IsrSC 50(3) 57, 68 (1996); Aharon Barak, Human Dignity and Liberty and the Basic Law: Freedom of Occupation 1749 (2023) (hereinafter: Barak); Compare on the other hand: High Court of Justice 3390/16 Adalah - The Legal Center for Arab Minority Rights in Israel v. Knesset, paragraph 44 of the opinion of Justice Noam Sohlberg [Nevo] (July 8, 2021)), it will be necessary to examine whether the law meets the other conditions set out in the limitation clause; Otherwise, the constitutional review process will end at this stage (High Court of Justice 5934/16 Aloni v. State of Israel - Ministry of Defense, para. 37 [Nevo] (January 23, 2018); Barak, at p. 2582).
- The question of when tax legislation leads to a violation of constitutional rights has not been fully clarified in the rulings of this court. Indeed, in certain contexts, the Court recognized that tax legislation can infringe on the right to equality in the constitutional sense (HCJ 8300/02 Nasser v. Government of Israel, paragraphs 46-49 [Nevo] (May 22, 2012)), the right to freedom of occupation ( the Bank of Israel case, at 42) and even the right to privacy (HCJ 8886/15 Republicans from Abroad in Israel (NPO) v. Government of Israel, para. 52 [Nevo] (January 2, 2018)). However, in other contexts, and in particular when the question arose as to whether tax legislation violates the right to property, the court refrained from deciding the question of the infringement of the right, assuming, for the purpose of constitutional examination only, that such an infringement exists (see, for example: High Court of Justice 4947/03 Municipality of Beer-Sheva v. Government of Israel, paragraphs 7-9 [Nevo] (May 10, 2006) (hereinafter: the Be'er Sheva case); and more recently: High Court of Justice 3964/23 The Movement for Quality Government in Israel v. The Knesset, paragraph 105 of the judgment of President Yitzhak Amit, paragraphs 53-55 of the opinion of Vice President Sohlberg and paragraph 12 of my opinion [Nevo] (July 31, 2025) (hereinafter: the matter of the Arnona Law). For a critique of this policy and possible explanations regarding the reasons underlying it, see: David Gliksberg, "Property Rights and Taxation: Judicial Policy, Its Biases, and Implications," Sefer Yaakov Ne'eman 493 (Aharon Barak and David Gliksberg, eds., 2023)). Since the question of whether tax legislation leads, in and of itself, to the violation of the constitutional right to property is closely related to the case at hand, I would like to expand a little on this matter.
- Although the court, as noted, has not yet decided the question of whether tax legislation leads to a violation of the constitutional right to property, three main positions can be identified in case law and academic writing. One position that has been voiced is that tax legislation by its very nature leads to a violation of the constitutional right to property, since it detracts from the assets of the individual (see, for example: Civil Appeal 10608/02 Zima v. Customs and VAT Department, IsrSC 58(3) 663, 670 (2004); High Court of Justice 3734/11 Dudian v. Knesset of Israel, IsrSC 66(1) 65, 94 (2012) (hereinafter: the Dudian case); Aharon Yoren, "The Constitutional Revolution in Taxation in Israel," Mishpatim 23, 55, 61 (5754); Barak, at p. 1339). The second (and opposite) position mentioned holds that tax legislation does not infringe the right to property at all (Dudian case, at p. 95; Moshe Cohen Elia, "Towards a Procedural Version of the Limitation Clause," Mishpat and Mishmal 10 521, 542 (2007)). Between these two approaches, an intermediate position was also mentioned, which is willing to recognize that tax legislation is liable to infringe on the constitutional right to property, but has limited this possibility to cases in which we are dealing with "legislative acts with substantial personal consequences" (Civil Appeal 6821/93 United Mizrahi Bank in Tax Appeal v. Migdal Kfar Cooperative, IsrSC 49(4) 221, 332 (1995) (President (ret.) Meir Shamgar) (hereinafter: the Mizrahi Bank case), or when it is a tax that is not a "good" tax (the Dudian case, at p. There it was noted that this criterion may overlap to some extent with the tests of the limitation clause. See also: Yosef Edrei, "Constitutional Interpretation and Judicial Review of Fiscal Legislation," Deuteronomy 13:31, 40 (2019)).
- The concept that any tax legislation violates the right to property should not be recognized is based on three main considerations. First, the concern was expressed that recognition that any infringement of the value of a person's property, including his taxation, is an infringement of the right to property, is liable to flood the court with constitutional claims. In this context, Justice Yitzhak Zamir noted in the Mizrahi Bank case:
The court is liable to sink its head and most of its head into examining the legality of any such law, perhaps, inter alia, it infringes property beyond the necessary extent; And the legislature will find it difficult to fulfill its role properly. The more the scope of property as a constitutional right is expanded, the weaker the protection of this right will be. And about this it can be said: You caught a lot, you didn't catch it. (ibid., at p. 471).