Later, on the matter Gangina, this court held that, in essence, the rules established in the Barnea are not bounded by the circumstances of the employee-employer relationship, and therefore even when it is not an employee-employer relationship, the two-stage test set out in the judgment in the case must be applied Barnea. For the rest of the determinations of The court in the matter Gangina I'll come back down the road.
Thus, the hurdle facing the appellants is twofold, since in order for the appeal to be accepted, the two questions must be decided according to their method: first of all to determine that the non-compete agreement between the acquiring company and Kahane is an authentic agreement and the consideration given to Kahane reflects his binding in this agreement, and after we have determined as aforesaid, to further determine that the said receipt should be classified as capital income.
I will proceed to examine these questions in order.
- Is the non-compete agreement between Kahane and the acquiring company authentic?
- As stated above, in the first stage, we must examine, from a factual point of view, whether the non-compete agreement between Kahane and the acquiring company is an authentic agreement, or whether its purpose is to bring about an artificial split of the consideration, for tax reasons. In this regard, it was held in the Barnea case that the true intentions of the parties must be traced, with the assistance of parameters "that attest to the employee's real ability to compete with his employer" (Barnea, paragraph 36 of the judgment of Justice Y. Amit).
As may be recalled, with regard to this question, the District Court held, based on a series of indications, that: "A large question mark hovers over the degree of authenticity of the non-compete clause to which the appellant was charged, So I would not have found it necessary to intervene in the Respondent's assessment, which attributes to the company the full consideration paid by the purchaser".
- It seems that the discussion of the authenticity of the non-compete agreement, both in the judgment of the District Court and in the pleadings of the parties, in fact focuses on three central questions that relate to the indications that can indicate the authenticity of the non-compete agreement: Was the initiative to split the agreements by Kahane or by the acquiring company? Is there an economic logic for splitting the consideration between the agreement to purchase the activity from Eisenberg and the non-compete agreement with Kahane? And was there a real need for a non-compete agreement? Naturally, the separation between these indications is artificial to a certain extent, since one indication is influenced by the other.
- The initiative to split the agreements: A possible central indication of the authenticity of the non-compete agreement lies in the answer to the question of whether the initiative to split the agreements was taken by Kahane or by the acquiring company. In this regard, the appellants claim that the splitting of the agreements was done at the initiative of the acquiring company, and on the other hand, the respondent claims that the split was done at the initiative of the appellants. The District Court ruled in this regard that the appellants were unable to prove that the agreements were split at the initiative of the acquiring company.
In my view, the picture that emerges in this matter is different.