As part of a merger and acquisition transaction it was agreed that key personnel will receive an immediate bonus and an additional amount spread over three years and contingent upon such employee remaining in the company. The Tax Authority taxes such as a salary and not as a capital gain.
The District Court found that the tax net should capture any income of an employee, will be the nature or form thereof as it may be, so long as given to the employee as part of employer – employee relationship. In this case, because payment was conditional upon the employee continuing to work for the company for at least three years (even if in the case of death or unjustified dismissal the entitlement remains), it is a consideration related to the employer-employee relationship and therefore will be taxed as a salary and not as a capital gain.