Artificial Business

<h1>Artificial Business</h1>Author: <a title="doron, tikotzky, amir mizrahi. advocate & notaries" href="http://www.articlesbase.com/authors/doron,-tikotzky,-amir-mizrahi.-advocate-&-notaries/64172.htm">doron, tikotzky, amir mizrahi. advocate & notaries</a> Eli Doron, adv. – Yaron Tikotzky, adv. (c.p.a)
 
The Israeli legislature has enacted a legal term of Artificial Business (“business” including “actions”) in the Israeli Tax Code (article 86). The aim of this article is to prevent illegitimate tax avoidance. The scope of discretion is wide, as this article comes to prevent tax avoidance that weren’t expressly prohibited by the tax code.
The article expressly refers to several conditions in order to apply the power given to the assessing officer:
(1)          The business avoids, or may avoid, wholly or partially, tax payments.
(2)          A certain conversion wasn’t essentially implemented.
(3)          One of the essential aims of the business is tax avoidance or improper tax reduction.
(4)                    Improper tax reduction does not have to contradict a legal statue.
However, like most essential law statutes, the courts gave extensive interpretation to this legal issue. Hereinafter we shall discuss the main, but not exclusive, judgments clarifying the subject.
English and American judgments, that have often piloted the Israeli courts, preferred an essential test to a technical assessment of the business’ shape. The Israeli courts adopted this agenda and added several examinations to guide the assessment officer as well as the businessmen.
In 1960, Landau J concluded that an artificial business is a business that strays from the common behavior for such business. According to this criterion, a business may be considered artificial even if it is legally valid.
In 1967, Zilberg DCJ added a test of the economic purpose of the business. That is to say, that if a certain business does not include any profitable aim, aside from tax avoidance, it will be artificial. More recent judgments concluded that the profitable aim must be substantial.
 Scholars often maintain that tax avoidance in itself is also a profit calculation, and therefore legitimate. The Israeli courts acknowledge this to a certain extent, as Shamgar CJ concluded 1994 judgment: tax avoidance is legitimate, as long as it is done under the scope of the law, and not by twisting the law in order to achieve deductions that weren’t meant to be taken advantaged of.
Indeed, in 2003 and later in 2006 Barak CJ determined that the test for the business’ artificialness is the economic test, but not the sole or exclusive test. This is an aiding test meant to balance the taxpayer’s right to avoid taxation and the public interest of a fair and equal tax system.
 
 About the Author: The authors are partners in law firm Doron, Tikotski, Amir Mizrachi, specializing	 
in tax law, real estate as well as civil law. The office started its operation in Haifa and currently operates all over the country through offices in Ramat-Gan, Haifa, Tiberias and Romania. In he office 27 lawyers work for the law firm, including 7 partners and 20 associates. Additionally, the team has legal trainees and an administrative crew. 
 
Ramat Gan 12 Hachilazon st, (Crystal House) 
Tel: 972-03-6127446, Fax: 972-03-6127449 
Haifa 58 Hameginim Blvd 
 Tel: 972-04-8526693 Fax: 972-04-8555976 
Bucharest– Rumania: Domnita Anastasia St. Nr. 
 
Question about the article ask here: 
<a href="mailto:eli-doron@taxlawyers.co.il">eli-doron@taxlawyers.co.il</a>Article Source: <a href="http://www.articlesbase.com/">ArticlesBase.com</a> - <a href="http://www.articlesbase.com/national,-state,-local-articles/artificial-business-469576.html" title="Artificial Business">Artificial Business</a>

Eli Doron, adv. – Yaron Tikotzky, adv. (c.p.a)

The Israeli legislature has enacted a legal term of Artificial Business (“business” including “actions”) in the Israeli Tax Code (article 86). The aim of this article is to prevent illegitimate tax avoidance. The scope of discretion is wide, as this article comes to prevent tax avoidance that weren’t expressly prohibited by the tax code.

The article expressly refers to several conditions in order to apply the power given to the assessing officer:

(1) The business avoids, or may avoid, wholly or partially, tax payments.

(2) A certain conversion wasn’t essentially implemented.

(3) One of the essential aims of the business is tax avoidance or improper tax reduction.

(4) Improper tax reduction does not have to contradict a legal statue.

However, like most essential law statutes, the courts gave extensive interpretation to this legal issue. Hereinafter we shall discuss the main, but not exclusive, judgments clarifying the subject.

English and American judgments, that have often piloted the Israeli courts, preferred an essential test to a technical assessment of the business’ shape. The Israeli courts adopted this agenda and added several examinations to guide the assessment officer as well as the businessmen.

In 1960, Landau J concluded that an artificial business is a business that strays from the common behavior for such business. According to this criterion, a business may be considered artificial even if it is legally valid.

In 1967, Zilberg DCJ added a test of the economic purpose of the business. That is to say, that if a certain business does not include any profitable aim, aside from tax avoidance, it will be artificial. More recent judgments concluded that the profitable aim must be substantial.

Scholars often maintain that tax avoidance in itself is also a profit calculation, and therefore legitimate. The Israeli courts acknowledge this to a certain extent, as Shamgar CJ concluded 1994 judgment: tax avoidance is legitimate, as long as it is done under the scope of the law, and not by twisting the law in order to achieve deductions that weren’t meant to be taken advantaged of.

Indeed, in 2003 and later in 2006 Barak CJ determined that the test for the business’ artificialness is the economic test, but not the sole or exclusive test. This is an aiding test meant to balance the taxpayer’s right to avoid taxation and the public interest of a fair and equal tax system.

doron, tikotzky, amir mizrahi. advocate & notaries

The authors are partners in law firm Doron, Tikotski, Amir Mizrachi, specializing
in tax law, real estate as well as civil law. The office started its operation in Haifa and currently operates all over the country through offices in Ramat-Gan, Haifa, Tiberias and Romania. In he office 27 lawyers work for the law firm, including 7 partners and 20 associates. Additionally, the team has legal trainees and an administrative crew.

Ramat Gan 12 Hachilazon st, (Crystal House)
Tel: 972-03-6127446, Fax: 972-03-6127449
Haifa 58 Hameginim Blvd
Tel: 972-04-8526693 Fax: 972-04-8555976
Bucharest– Rumania: Domnita Anastasia St. Nr.

Question about the article ask here:
eli-doron@taxlawyers.co.il

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Article Tags: Tax Law, Artificial Business, Israeli Tax, Tax Avoidance

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