Israeli Court Rules IP Value is Six Times Higher than Claimed

Executive Summary

The Tel Aviv District Court ruled in favor of the Israeli Tax Authorities (ITA), who claimed that the intellectual property (IP) which CA Software Israel Ltd. sold back in 2010 was worth ILS667m (rather than ILS111m as claimed by the taxpayer). The Court’s ruling was based, inter-alia, on the failure of the taxpayer to provide supporting documentation from the time of the IP sale (i.e., real-time documentation). Israeli companies and multinational enterprises that acquire Israeli companies or selling IP from Israel to other jurisdictions such as Cyprus should be mindful of the sufficiency of documentation they have in support.


On 25 October 2022, the District Court in Tel Aviv ruled on an appeal filed by CA Israel against Tel Aviv’s Tax Assessing Office pursuant to a tax assessment claiming that IP which CA Israel sold to a related party should have been valued at ILS667m rather than ILS111m. The Court also ruled that a secondary adjustment should deem the difference between the values as an amount which was lent to the purchaser and interest income should be assessed at the level of the Company on such deemed receivable.


The Court ruled that CA Israel was not successful in shifting the burden of proof to the ITA, since it did not bring before the Court all of the relevant documentation necessary to support its claim. In fact, the Court came to the conclusion that the Company did not bring any documentation or proof from the time of the deal (which took place back in 2010), which supported the Company’s position that the IP was close to the end of its economic life and that its value was decreasing.

The ITA, on the other hand, presented the court an old application from 2009, that the Company filed with the Israeli Innovation Authority (IIA formerly known as the Israeli Office of the Chief Scientist), in which the Company described a market size of at least US$1b for the IP-based products, their big potential and the considerable effort and expense incurred in the further development of such IP (all of which undermined the Company’s position).


Israeli companies which sell IP or other assets should ensure that they have sufficient documentation to support any value they claim before the ITA, and also that any documentation from the time of sale does not contradict their position.


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