A director in a Company received non-traded options in exchange for his services. Upon exercise of the option they were taxed as a yielding income rather than capital gains.
The Court held that between a director (whether a professional director or a regular director) and the company exist relationship of granting and receiving services. Therefore, director's income (or options) received for his services is a yielding income that is to be taxed as a yielding income as long as the issuance was prior to 01.01.2003, i.e. before the change in section 102 of the Israeli Tax Ordinance that today enable a choice between a yielding income path or a capital gains path. Thus, the director will be taxed for the options as a yielding income and not as capital gains