Similar statements were made by President (ret.) Shamgar in his opinion on the same matter:
There is no intention for the court to exercise its constitutional powers with respect to the imposition of any fee or stamp duty that is not burdensome, merely because they do, of course, according to the nature of the matter, an obligation to pay any kind. If any such marginal issue is referred for examination under [the limitation clause], the courts will deal with any case of a significant change in the tax rates in long and tedious discussions, in which the state will have to bring evidence to justify the tax, and the courts will in effect become the signatories for ratification or cancellation of any fiscal act. Such a development is undesirable. (Ibid., at p. 332. emphasis in the original).
Second, the concern was expressed that the recognition that any tax legislation violates the right to property could harm the balance between the authorities. This is from the moment the court is forced to rule frequently on questions relating to the socio-economic policy of the legislature, a matter that is institutionally undesirable (see, for example, ibid., at pp. 331-332).
Third, it was argued that by paying tax, a person fulfills the social responsibility imposed on him, and therefore the imposition of tax should not be regarded as an infringement of his right to property. This consideration is also connected to the claim that the imposition of the tax finances the state's budget, through which it provides public services to the public. The taxes collected by the state constitute, according to this line of argument, the state's legitimate share of the citizens' profits (see a reference to this consideration in the words of the Vice-President). Enlightened In the matter Dudian, at p. 95. For additional considerations raised in relation to the question of whether it is appropriate to recognize that tax legislation violates the right to property, see Lightning, at pp. 1339-1345).
- Although even in the framework of the present proceeding, it is possible to follow the path taken by the case law so far, and to assume for the purpose of the discussion that there is a violation of the constitutional right to property, since in any case, as will be detailed below, the law meets the conditions of the limitation clause, I am of the opinion that the time is ripe to establish a rule in this matter (cf. the hearing that took place in criminal appeal 4424/98 Silgado v. State of Israel, IsrSC 56(5) 529 (2002). In this context, it should be noted that the stage of the violation of the right is, as stated, the first stage in the constitutional review process). I will therefore present in detail my position on the matter.
- A basic condition for the state's existence is its ability to finance its activities. The tax system is intended, first and foremost, to enable the state to do so. By means of the tax collected by the state, it can fulfill its various roles: to ensure security and public order; to provide its citizens with public goods and services; to promote its values and worldviews; And more. It is no coincidence that the saying attributed to Benjamin Franklin is well known, according to which "there are two certain things in life - death and taxes" (in his words: in this world nothing can be said to be certain, except death and taxes). Indeed, the tax is necessary. Without it, there is no life for the country. It should be noted that in modern times, the tax system serves only as a means of financing the state's activity. Through it, it is possible, among other things, to promote important social values such as distributive justice, efficiency, and fairness; and to influence the manner in which individuals in the company behave - whether by way of providing positive incentives or by means of "punitive" taxation (on the purposes of the tax system, see: Civil Appeal 3012/18 Haifa Real Estate Taxation Administration v. Twenty Underground Nahariya Ltd., para. 35 [Nevo] (July 4, 2019); Additional Civil Hearing 7480/18 Kretzmer v. Jerusalem Tax Assessor, paragraph 11 of the judgment of Judge Uzi Fogelman [Nevo] (October 31, 2021); Aharon Namdar Income Tax 35 (Fourth Edition 2013) (hereinafter: Namdar)).
- The many goals that the tax system is required to achieve at the same time, the changing financing needs of the state, as well as the fear that improper attempts will be made to evade paying tax, lead to the fact that tax legislation is often complex, branched, and constantly changing (on the complexity of tax arrangements, see my recent remarks in Administrative Appeal Request 4413/23 State of Israel Tax Authority v. Neumann, Paragraph 1 [Nevo] (November 4, 2025)). Although, in general, these characteristics do not justify a different view of tax law in relation to other branches of law (see in various contexts: Kaniel, at p. 286; High Court of Justice 6304/09 Lahav - The Bureau of Self-Employed and Business Organizations in Israel v. Attorney General, para. 78 [Nevo] (September 2, 2010) (hereinafter: the Lehav case); Civil Appeal 4157/13 Ilana v. Rehovot Assessor, para. 22 [Nevo] (February 3, 2015); Civil Appeal 3129/19 Zankel inTax Appeal v. Haifa Tax Assessor, para. 35 [Nevo] (August 25, 2022)), in my view, they justify a slightly different view of the question of whether tax legislation in itself leads to a violation of the constitutional right to property.
In my view, it will not be effective, justified or effective if we pass any change in the tax system under the baton of constitutional review. Ineffective, since tax legislation changes, as noted, frequently, and therefore, opening the door to filing a constitutional petition in any case of a change in the tax system - no matter how minor - is liable to flood the courts with many petitions, the vast majority of which lack a constitutional basis (see reference to this consideration in the matter Mizrahi Bank as detailed in paragraph 40 above). Unjustified, since it is appropriate to recognize the significant room for maneuver that the legislature has in shaping the tax system, in accordance with the policy it seeks to promote. Ineffective, since a constitutional examination of any change in the tax system may actually lead to a violation of the protection of the right to property, in the absence of focus on cases where there is a concern of significant harm. In what cases, then, should it be recognized that tax legislation violates the constitutional right to property? In accordance with the interim approach described above, my answer to this question is that it would be appropriate to move on to the second stage of the constitutional examination (i.e., to recognize the violation of the right to property) only when it comes to a tax that, according to its characteristics, does not meet one of the characteristics of a "good tax".
- The obvious question is, which tax would be considered a "good tax"? This question was answered by the economist Adam Smith as early as the 18th century. According to him, a tax is a "good" tax if it meets four conditions: First, the tax must take into account the taxpayer. This requirement includes, inter alia, situations in which the imposition of the tax leads to a violation of the taxpayer's constitutional rights or interests (for example, a tax that impairs the possibility of living with dignity). Second, the tax must be certain and known in advance. Thus, for example, when the tax is imposed retroactively, this condition is not met. Third, the tax should be efficient. This condition consists of an administrative aspect - tax collection must be as simple as possible in order to ensure that the state enjoys the full amount of tax paid by the citizen; and from an economic aspect - the tax must prevent, and not create economic distortions and market failures. In other words, it should be strived that "any economic action that would have been carried out prior to the imposition of the tax, while effective, will continue to be carried out even after it is imposed, and any action that would not have been carried out, insofar as it is inefficient, will continue not to be carried out even after the tax was imposed" (Civil Appeal 9817/17 Tel Aviv Real Estate Taxation Administration v. Avivi Reich, paragraph 21 of the opinion of Deputy President Hanan Melcer [Nevo] (February 21, 2021) (hereinafter: The Avivi Reich case). Fourth, and finally, the tax must be based on fairness and honesty, with the meaning of this requirement being that the same tax will be imposed on taxpayers in the same situation, while taxpayers in a different situation will be taxed differently (see: Civil Appeal 8453/14 Shlomo Insurance Company in Tax Appeal v. Tax Assessor for Large Enterprises, paragraph 3 of the opinion of Vice President Elyakim Rubinstein [Nevo] (June 5, 2016); Civil Appeal 2515/18 MCL Drorim Mall in Tax Appeal v. Petah Tikva Tax Assessor, para. 35 [Nevo] (June 17, 2020); Avivi Reich, at paragraphs 20-24 of the opinion of Deputy President Meltzer; Yosef Edrei, Introduction to Tax Theory 17-23 (2008)).
- If we wish to translate these principles into cases in which it would be justified to recognize the infringement of the constitutional right to property due to the entry into force of new tax legislation, we are dealing with, inter alia, cases in which there is a real concern that one of the following five (hereinafter: the suspicious categories exists):
- Tax legislation that involves a significant violation of the taxpayers' vested property rights. Thus, for example, when we are dealing with "taxation in kind" - taking property of the debtor, as opposed to imposing a monetary charge (see: the matter of the Arnona Law, in paragraph 12 of my opinion).
- 00Tax legislation that involves significant harm to important public interests. Possible examples of this are taxes that have a substantial negative impact on the environment or public health, or taxes that harm a disadvantaged population to the extent that it raises concerns about harming the ability to live with dignity (e.g., a non-negligible head tax).
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- Retroactive tax legislation, i.e., legislation imposing tax liability for situations, events or actions that occurred in the past (for the difficulties in imposing retroactive taxation, see and compare: Civil Appeal 1613/91 Arbiv v. State of Israel, IsrSC 46(2) 765, 776-777 (1992) (hereinafter: the Arbiv case); Additional Hearing High Court of Justice9411/00 Arco Electric Industries inTax Appeal v. Mayor of Rishon LeZion, IsrSC 66(3) 41, 55-58 (2009); High Court of Justice 687/15 Yedid v. Knesset, para. 31 [Nevo] (July 9, 2015)).
- The imposition of a tax that is inherently unequal (even in cases where there is no violation of the constitutional right to equality), in the sense that it discriminates arbitrarily between taxpayers, in a manner that deviates from the necessity derived from the arbitrary nature of the rules.
- Tax legislation that is ostensibly contrary to economic logic, such as when the result of the imposition of the tax is expected to create a significant market failure, or when on the face of it the costs of collecting it do not justify its imposition.
- It should be clarified that the five suspicious categories mentioned above are not a closed list, and it is possible that in the course of time additional suspicious categories will be identified in which it would be justified to recognize that tax legislation violates the constitutional right to property in a manner that justifies moving beyond the second stage of the constitutional examination. It is also important to mention that a vote on the existence of one of the suspicious categories is required only for the purpose of entering the gates of the constitutional examination (passing the first stage of infringement of the right in the case of tax legislation), and that even if one of them exists, it is still very possible that the law will be determined to be constitutional, because it meets the tests of the limitation clause. In other words, the suspicious categories indicate when a tax law is constitutionally "suspicious" (it does not meet all the "good" tax tests), and therefore requires the continuation of the constitutional examination process, by way of applying to the tests of limitation rulings; They do not indicate what will arise at the end of the constitutional examination, and they certainly do not indicate that this is an unconstitutional law, which justifies the granting of relief on the constitutional level (and compare, all the more so, High Court of Justice 4531/23 Barkat v. Minister of Finance [Nevo] (December 5, 2024), which dealt with the decision to repeal secondary legislation in circumstances that clearly fall into the second and fifth suspect categories - the cancellation of tax legislation in a manner that led to real harm to important public interests (public health) and ostensibly contrary to economic logic (the abolition of a tax intended to internalize the external costs of harmful activity) - and yet we found, for reasons clarified there, that there is no reason to intervene in it).
- If we apply these principles to our case, we will reach the conclusion that the Undistributed Profits Taxation Law does not infringe on the constitutional right to property to the extent that justifies moving beyond the second stage of the constitutional examination. I will clarify this matter by examining the various arguments raised by the petitioners regarding the alleged infringement of the property right.
The Petitioners' main argument in this context is that the Law applies retroactively, in contrast to the third suspect category. This is essentially the case, since excess profits tax also applies to profits accumulated in the company's coffers prior to its entry into force (i.e., profits accrued before 2025). However, this characteristic of the tax does not make it retroactive. In the matter Arbiv This Court discussed at length the way in which a distinction should be made between retroactive legislation (which by its nature gives rise to difficulties) and legislation with prospective or active application (which, as a rule, does not give rise to difficulties in the realm of applicability). It was explained that while retroactive legislation is such that "Changes with respect to the future the legal status, legal features or legal consequences of situations that have ended or of actions or events (acts or omissions) that were done or occurred before the date of the entry into force of the law", the application of the law is active"If it is applied to a state of affairs that takes place on the day the law comes into effect" (ibid., at pp. 777-779). In order to illustrate the differences, the court used an example that is similar in substance to the state of affairs in our case: