Gad Zeevi to Pay Tax and Fine on 65 Million Shekels in Capital Gains
Businessman Gad Zeevi will pay taxes and a 15% fine on 65 million shekels in capital gains from selling Overseas Commerce shares. The Tel Aviv District Court rejected retroactively claimed losses, ruling them artificial tax evasion tactics.
Israeli businessman Gad Zeevi will pay taxes and a 15% deficit fine on capital gains of 65 million shekels generated from the sale of his shares in the publicly traded logistics company Overseas Commerce between 2016 and 2018. This ruling was issued this week by the Tel Aviv District Court.
In her verdict, Judge Yardena Sarosi accepted the position of the Tel Aviv District Attorney's Office (Civil), ruling that Zeevi Shipping, the company that sold the shares, was not entitled to offset the capital gains with losses of an identical magnitude that it allegedly incurred. Judge Sarosi determined that the claimed losses were artificially fabricated in retrospect solely to evade paying approximately 25% tax on the real capital gain.
The appeal filed by Zeevi Shipping, part of the Gad Zeevi group, concerned the company's demand to offset significant capital gains generated from the sale of Overseas Commerce shares against capital losses and bad debts of various kinds that it retroactively attributed to itself. According to the ruling, between 2016 and 2018 Zeevi Shipping sold its holdings in Overseas Commerce and recorded total capital gains of approximately 65 million shekels.
In response, the company claimed it suffered losses from two main sources. The first involved the execution of a company guarantee by a bank for a debt belonging to the parent company, which Zeevi Shipping had guaranteed. This debt was previously reported by another group company and retroactively attributed to Zeevi Shipping. The second source was a capital loss resulting from the write-off of an investment in another company within the Zeevi group.
Had these loss claims been accepted, Zeevi Shipping would have been exempt from paying taxes on its capital gains, as taxpayers are permitted to offset losses against profits. The claimed losses completely matched the profits generated. Represented by Attorney Yael Hershman-Axen from the Central District Attorney's Office (Civil), the state argued that these were artificial offset claims.
The court rejected Zeevi Shipping's capital loss claims on both counts, determining that in both cases the arguments were unsubstantiated, unproven, and designed solely to illegally offset capital gains. "When dealing with a group of companies under a single controlling shareholder, there is a tangible concern that the controlling shareholder will channel capital losses to profitable companies in order to offset resulting capital gains," the court stated in its verdict.
Regarding the capital loss from writing off an investment made in a related company, the court ruled that the value of the investment and the resulting loss were not proven. "It appears that the sole reason for recording the acquisition in the company's books was the expectation of receiving funds from the sale of Overseas Commerce shares," the judge wrote.
The court strongly criticized the manner in which the company submitted its reports to the Tax Authority, imposing a 15% deficit fine on the owed tax. Additionally, the court ordered the company to pay 75,000 shekels in legal costs to the state.
