The end of stamp duty

Two judgements were handed down by the Supreme Court that may be of interest to readers who paid stamp duty before its repeal

By LEON HARRIS
Stamp duty was applied in Israel - usually at rates of 1 percent to 2% of the value of various transactions - until its repeal on January 1, 2006. Recently, two judgements were handed down by the Supreme Court that may be of interest to readers who paid stamp duty before its repeal. Shikun Ovdim In the Shikun Ovdim court case, a loan agreement was signed between two parties in 2003. A loan agreement was liable to stamp duty at the time under the heading of "Other Document." The issue at stake was determining who had to pay the stamp duty. Following an amendment in 2003, the taxpayers were the parties who signed the loan agreement; they were jointly and severally liable to pay the stamp duty, unless one party undertook to pay it. In this case, the loan agreement did not stipulate that anyone would pay the stamp duty, so the Tax Authority was entitled to demand payment of the stamp duty from both sides. In practice, the Tax Authority issued an assessment to one side only for half of the stamp duty. The question was whether the Tax Authority had properly applied its discretion. The Supreme Court ruled that it had not: The Tax Authority failed to explain why it had issued the assessment to one side only, raising concerns that it had acted in an arbitrary manner, not impartially. It was required to refund the stamp duty paid. Consequently, readers in a similar situation should check whether to request a stamp duty refund. Shopping.Com The Shopping.Com court case was also notable. The question here was whether an Israeli public company was required to pay Israeli stamp duty when it issued shares to the public on the New York Stock Exchange. The tax was imposed at the time at the rate of 1% of the consideration, or value of consideration, paid, or the par value of the shares issued, whichever was higher. In this case, the amount at stake was NIS 4.5 million. The Supreme Court ruled that there was no basis for imposing stamp duty on the issue of shares of a public company on a foreign stock exchange only, following a "drafting failure" in the law. Consequently, readers in similar cases should again consider requesting a refund of stamp duty paid. This may be relevant to companies that issued shares abroad before January 1, 2006, which at the time of issuance were publicly traded outside Israel only, if the stamp duty was paid when notifying the Israeli Companies Registrar of the shares issued. As always, consult experienced tax advisors in each country at an early stage in specific cases. leon.harris@il.ey.com Leon Harris is an international tax partner at Ernst & Young Israel.