Author: Courts of Israel

Israel vs Medtronic Ventor Technologies Ltd, June 2023, District Court, Case No 31671-09-18

Israel vs Medtronic Ventor Technologies Ltd, June 2023, District Court, Case No 31671-09-18
In 2008 and 2009 the Medtronic group acquired the entire share capital of the Israeli company, Ventor Technologies Ltd, for a sum of $325 million. Subsequent to the acquisition various inter-company agreements were entered into between Ventor Technologies Ltd and Medtronics, but no transfer of intangible assets was recognised by the Group for tax purposes. The tax authorities found that all the intangibles previously owned by Ventor had been transferred to Medtronic and issued an assessment of additional taxable profits. An appeal was filed by Medtronic Ventor Technologies Ltd. Judgement of the District Court The court dismissed the appeal and upheld the assessment issued by the tax authorities. Click here for English translation Israel vs medtronic-ventor ORG ... Read more

Israel vs CA Software Israel Ltd, October 2022, Tel Aviv District Court, Case No 61226-06-17

Israel vs CA Software Israel Ltd, October 2022, Tel Aviv District Court, Case No 61226-06-17
The shares in Memco Software Ltd (now CA Software Israel Ltd) was acquired by CA Inc. in the late 90’s for 400 millions. Later in 2010 all the intangibles developed by the company (software and know-how etc.) was transferred to a CA group company at a price of 111 millions. Following an audit the tax authorities issued an assessment where the value of the intangibles was instead determined to be 667 million and the additional gain was added to the taxable income. Furthermore, since payment of the determined arm’s length value had not been received by CA Software Israel Ltd, interest of 2,2585% was calculated on the amount owed and added to the taxable income in the years following the transfer. An appeal was filed by CA Software Israel Ltd. Judgement of the Court The court upheld the tax assessment and the value determined by ... Read more

Israel vs Medingo Ltd, May 2022, District Court, Case No 53528-01-16

Israel vs Medingo Ltd, May 2022, District Court, Case No 53528-01-16
In April 2010 Roche pharmaceutical group acquired the entire share capital of the Israeli company, Medingo Ltd, for USD 160 million. About six months after the acquisition, Medingo was entered into 3 inter-group service agreements: a R&D services agreement, pursuant to which Medingo was to provide R&D services in exchange for cost + 5%. All developments under the agreement would be owned by Roche. a services agreement according to which Medingo was to provided marketing, administration, consultation and support services in exchange for cost + 5%. a manufacturing agreement, under which Medingo was to provide manufacturing and packaging services in exchange for cost + 5. A license agreement was also entered, according to which Roche could now manufacture, use, sell, exploit, continue development and sublicense to related parties the Medingo IP in exchange for 2% of the relevant net revenues. Finally, in 2013, Medingo’s operation ... Read more

Israel vs Sephira & Offek Ltd and Israel Daniel Amram, August 2021, Jerusalem District Court, Case No 2995-03-17

Israel vs Sephira & Offek Ltd and Israel Daniel Amram, August 2021, Jerusalem District Court, Case No 2995-03-17
While living in France, Israel Daniel Amram (IDA) devised an idea for the development of a unique and efficient computerized interface that would link insurance companies and physicians and facilitate financial accounting between medical service providers and patients. IDA registered the trademark “SEPHIRA” and formed a company in France under the name SAS SEPHIRA . IDA then moved to Israel and formed Sephira & Offek Ltd. Going forward the company in Israel would provid R&D services to SAS SEPHIRA in France. All of the taxable profits in Israel was labled as “R&D income” which is taxed at a lower rate in Israel. Later IDA’s rights in the trademark was sold to Sephira & Offek Ltd in return for €8.4m. Due to IDA’s status as a “new Immigrant” in Israel profits from the sale was tax exempt. Following the acquisition of the trademark, Sephira & Offek ... Read more

Israel vs The Barzani Brothers (1974) Ltd., Oktober 2020, Jerusalem Court of Appeal, Case No 54727-02-17

Israel vs The Barzani Brothers (1974) Ltd., Oktober 2020, Jerusalem Court of Appeal, Case No 54727-02-17
The Barzani Brothers (1974) Ltd had provided interest-free financing to affiliated Romanian group companies in the form of “capital notes”. In Israel, financing qualifying as a “capital note” releases the lender from having to report interest income in its annual tax return in relation to the funding. Certain high risk long term funding arrangements may qualify as a “capital notes”. In regards to the intra-group funding provided by the Barzani Brothers Ltd, the Israel tax authorities did not recognize the qualification thereof as “capital notes”. Instead they found the funding provided to be ordinary loans. Labeling a loan agreement “capital note” does not turn the loan agreement into a capital note. On that basis an assessment of taxable interest income was issued to the company. The Court ruled in favor of the tax authorities and rejected the explanations of Barzani Brothers Ltd that the “loan-like ... Read more

Israel vs Broadcom, December 2019, Lod District Court, Case No 26342-01-16

Israel vs Broadcom, December 2019, Lod District Court, Case No 26342-01-16
Broadcom Semiconductors Ltd is an Israeli company established in 2001 under the name Dune Semiconductors Ltd. The Company is engaged in development, production, and sale of components to routers, switches etc. The shares in Dune Semiconductors were acquired by the Broadcom Corporation (a US group) in 2009 and following the acquisition intellectual property was transferred to the new Parent for a sum of USD 17 million. The company also entered into tree agreements to provide marketing and support services to a related Broadcom affiliate under a cost+10%, to provide development services to a related Broadcom affiliate for cost+8%, and a license agreement to use Broadcom Israel’s intellectual property for royalties of approximately 14% of the affiliate’s turnover. The tax authorities argued that functions, assets, and risks had been transferred leaving only an empty shell in Israel and a tax assessment was issued based on the purchase ... Read more

Israel vs Broadcom, Aug 2019, Israeli Supreme Court, Case No 2454/19

Israel vs Broadcom, Aug 2019, Israeli Supreme Court, Case No 2454/19
In 2012 Broadcom Corporation acquired all the shares of Broadlight Inc, another US corporation which owned a subsidiary in Israel, for around $200 million. Three months later, the subsidiary in Israel sold its IP to a group company for $59.5m and then an agreement was entered according to which the subsidiary going forward would supply R&D, marketing and support services to the other group companies for a cost plus fee. Based on these facts the Israeli tax authorities issued an assessment equivalent to $168.5m. The tax authorities found that the full value of the company in Israel had been transferred. The tax assessment was brought to court where Broadcom claimed that the tax authorities had re-characterised the transaction and that the onus of proof was on the tax authorities to justify the value of $168.5m. The District Court held that all the values in the ... Read more

Israel vs Kontera and Finisar, April 2018, Supreme Court, Case No. 943/16

Israel vs Kontera and Finisar, April 2018, Supreme Court, Case No. 943/16
In these two cases from Israel the Supreme Court rules on the issue of whether or not companies using the cost plus method must include stock-based compensation in the cost base. The Court concludes that stock-based compensation is an integral part of the compensation package of the Israeli subsidiaries’ employees with the objective of improving the quality of services rendered and strengthening the bond between the companies’ and employees’ cohesive goals. Therefore, such compensation should be included in the cost base. The Court also addressed the burden of proof in relation to transfer pricing disputes in Israel. Section 85 A (c) (2) provides that the burden of proof is with the tax authority if the taxpayer have submitted all required documentation, including a transfer pricing study, that “adequately substantiate” intercompany prices to be in accordance with arm’s length principle ... Read more

Israel vs Hewlett-Packard, July 2017, Settled in International Arbitration

Hewlett-Packard pays NIS 1.6 billion ($450 million) in tax on its 2006 acquisition of the intellectual property of Israel company Mercury Interactive, in addition to the NIS 1 billion already paid to the Israel Tax Authority. The acquisition at issue took place in two stages. First the shares in Mercury Interactive were acquired by Hewlett-Packard for $4.5 billion in 2006. Then in 2009 Mercury Interactive’s intellectual property was transferred to Hewlett-Packard for a substantially lower price of $963 million. The Tax Authority held that the sales of the intellectual property should be taxed at the full value of $4.5 billion The case was settled in international arbitration, which ended with an additional tax payment of NIS 1.6 billion by Hewlett-Packard ... Read more

Israel vs. Gteko Ltd (Microsoft), June 2017, District Court

Israel vs. Gteko Ltd (Microsoft), June 2017, District Court
In November 2006 Microsoft Corp. purchased 100% of the shares of Gteko Ltd. (IT Support technology), for USD 90 million. The purchase was made with the intention of integrating Gteko’s technology into Microsoft’s own products. Following this purchase of Gteko Ltd., the employees were transferred to the local Microsoft subsidiary and a few months later another agreement was entered transferring Gteko’s intellectual property/intangibles to Microsoft. This transfer was priced at USD 26 million based on the purchase price allocation (PPA). The tax authorities of Israel found that the price of 26 mio USD used in the transaction was not at arm’s length. It was further argued, that the transaction was not only a transfer of some intangibles but rather a transfer of all assets owned by Gteko as a going concern to Microsoft Corp. The arm’s length price for the transfer was set at USD 80 million. The District Court agreed with the assessment and ... Read more