The Tax Authority (ITA) wrongly imposed a lien (bank freeze, ikul) on a taxpayer’s bank account, and this amounted to defamation, the Ashkelon District Court just ruled. Therefore, the taxpayer was awarded damages (Zimmerman v. Ashkelon assessing officer Taf Alef).
Since surprise bank freezes happen all too often in Israel with little or no cause (e.g., postal delays), this case is of great interest to taxpayers and a big embarrassment for the ITA.
Facts: The events occurred in 2017. On Feb. 8, the taxpayer received a tax assessment regarding the 2014 tax year. The taxpayer had until March 3 to appeal the assessment and did so in good time on Feb. 28 – but to no avail.
On March 1, the ITA imposed a bank freeze on the taxpayer’s bank account. On March 5, the taxpayer heard about the freeze by phone from his bank and managed to get the bank freeze canceled the same day. On March 8, the taxpayer sent a written complaint to the ITA, which replied on May 10 with an apology, saying there apparently had been a human error.
In the ensuing court proceedings, the taxpayer said the affair had caused him grief, and humiliation and tarnished his banking profile and claimed defamation damages of NIS 50,000.
The ITA said the freeze had been imposed in good faith, as the assessing officer was unaware of the appeal against the assessment, and the taxpayer had not reacted to two earlier warning notices of tax due sent on Jan. 4 and Feb. 2 (before the 2014 tax assessment was issued and appealed against).
Judgment: The court came down strongly on the taxpayer’s side, saying “good faith” was not a sufficient defense, and no other defense was offered by the ITA. Section 13(9) of the Defamation Prohibition Law says one defense is the act of publicity concerned had to be done by law or by instruction of a competent authority or that they were allowed to do so. Section 15(2) of the same law exonerates “legal, moral or social obligation” to publicize something.
In this case, since all parties agreed the freeze was imposed in error, it was unlawful. Therefore, none of the defamation defenses could apply, and “good faith” was not relevant.
Also, the ITA did not provide proof of delivery of any of the tax-debt notices. Furthermore, the court criticized the ITA for saying the taxpayer should have picked up ITA errors, saying this was “unreasonable and plagued by confusion that creates and transfers to the shoulders of the taxpayer – a citizen – a burden that is not placed at his door.”
Since no proof of delivery of warning notices was provided, the court ruled in favor of the taxpayer and awarded him damages of NIS 10,000.
Notices: Section 238 of the Income Tax Ordinance says: “A notice can be delivered to a person either in person or by registered mail according to their business address or private address as they are most recently known... and to prove delivery in this way it is sufficient to prove that the letter containing the notice was properly sent and properly addressed.”
Comments: Unfortunately, the ITA can be trigger happy with bank freezes, even with fully compliant taxpayers.
Here, a tax assessment was still under appeal. In many cases, the freeze is because the ITA decides to increase monthly advance tax payments, but the notice to the taxpayer to pay more tax is still in the postal system. Moreover, the taxpayer may already be paying sufficient tax advances; they are only an estimate of this year’s tax and can only be accurately calculated after the year-end. We also know of one case where an Israeli bank did not properly remit purchase tax regarding an apartment to the ITA.
Should you sue the ITA for defamation if your bank account gets frozen?
Perhaps not if the ITA invokes a defense suggested by the court. However, if an ITA notice is not properly delivered before a bank freeze, it seems a defamation claim might be considered.
In short, the ITA needs to put its house in order and only impose bank freezes as a last resort, as in other countries. Let’s hope the above case brings this home to the ITA.
As always, consult experienced lawyers and tax advisers in each country at an early stage in specific cases.
leon@h2cat.com
The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.