This classic debate took place in the judgment that discussed an “oversight” that failed the legislator. This is a legislative bluff designed to disguise a prohibited benefit to exporters (even though this is the goal) and the attempts to fix it went through two legal landmines such as retroactive legislation and canceling the clear language of the law in favor of its purpose. And in the background there is even a political-ideological touch that concerns the perception of Israel and the Territories as one “customs territory” that erases the green line.
When the Knesset enacted this benefit, it was clear that the intention was to benefit the exporters. However, the economic advisers to the Attorney General, attorneys Didi Lachman-Messer and Avi Licht, refused the Treasury’s request to explicitly write in the law that the condition for the benefit is export. And why? Because such a benefit is a violation of Israel’s trade treaty and its international obligations. Therefore, something else should have been written , and this was the condition for income in a market of 12 million inhabitants.
Five companies that do not export, but mainly market in Israel, sought to take advantage of this shrabloff: Topgam Confectionery, Zenalkal, Medi Vared, Delid and Sobhai Nachla and Sons. They claimed to be entitled to the tax benefit because the sale to a large market of 12 million inhabitants is not limited only to foreign countries, and in 2011 the local market – Israel and the Palestinian Authority – numbered over 12 million inhabitants. “If the legislator chooses a certain legislative technique for the purpose of determining the distinction between large markets and small markets, then this technique must be adhered to for better or for worse, and this also in situations where this will lead to a result that directly contradicts the purpose of the law,” wrote attorney Moshe Mizrahi, Amit Krigel And Noah Elhadad.
3. The Tax Authority objected and insisted on the purpose of the law – a benefit for exporters only. Judge Grosskopf had to reconcile “the silent language of the benefit arrangement, which does not include any distinction between production for the Israeli market and between production for a foreign market, with its glaring purpose, which is not compatible with granting the benefit to factories that produce for the Israeli market.”
Grosskopf preferred the law’s “screaming purpose” over its “silent language”. And thus lies a dramatic innovation: Judges Grosskopf and Yitzhak Amit (who agreed with his opinion) prefer the purpose even when the language of the law is completely clear and specifically talks about the scope of sales and market size and not about exports.
Apparently the tax authority was also afraid of the strict linguistic interpretation of the law and therefore raised the threshold of 12 million to 14 million inhabitants. And here another glitch was recorded: a retroactive amendment of the law, in July 2013 at a time when some of the companies had already submitted reports for 2012.
The state grabbed the rope from every possible end: if its interpretation that it is an export is accepted – in any case there is no need and no meaning for the retroactive numerical correction. But, if the courts adhere to the linguistic interpretation and the authority’s position that it is a benefit for exporters only is rejected – then the numerical threshold that was raised will drop the companies’ entitlement to the benefit because the “customs territory”, Israel and the Palestinian Authority, does not reach the new number of 14 million inhabitants.
4. Grosskopf mentions in his ruling a previous case in which the court was required to breathe life into a purpose in order to reach the goal, and also there this goal was linked to an interpretation that erases the green line. This story was written about here (“The Supreme Court’s disengagement plan: Who is entitled to tax exemption in Area C?”, Calcalist, 10/31/21). The question was whether the “Conference of Islamic Sciences and Education” association, which operates a school in Bir Naballah in Area C, outside In the areas of the green line, an activity for a “public purpose” is entitled to benefit from the status of a “public institution” for the purpose of receiving the income tax exemption.
The definition of “public purpose” is a “silent definition,” according to Grosskopf, “which does not clarify that it refers to an Israeli ‘public purpose’ only. However, this court had no difficulty reaching the conclusion that in light of the purpose of the settlement, the silent language of the law must be read into A requirement for the existence of ‘Zika to Israel'”.
In both cases, the court is required to find the purpose in order to overcome the silent language. In that case, it is necessary to interpret the “public purpose” as having “affinity to Israel”, in order to deny, for example, the benefit from hostile Palestinian associations. Here the law must be interpreted as meaning “export” in order to deny the benefit to industrial plants that produce for the Israeli market.
And another similarity: the association was represented by attorney Moshe Mizrahi, former legal advisor of the Tax Authority who also represented the companies in the current appeal. The PA then wondered how “one of our own” is mobilizing for the benefit of a Muslim education association. Mizrahi explained that these are contents that are studied even within the Green Line, and that he would not have helped if he had not made sure that even the Shin Bet does not attribute inciting contents to the association.
5. In conclusion, two legal “accidents” occurred on the way to correcting the legislative oversight. First, an absolute preference for the purpose over the language of the law and secondly, retroactive legislation that if its repeal were examined through constitutional glasses, it would be possible to raise questions such as whether it is appropriate to discriminate against factories that sell to the local market; Does a law that allegedly violates trade agreements comply with the values of the State of Israel; Is the law proportional in the sense that it favors five software developers operating from Herzliya compared to a carpentry operating in Sderot and employing 100 workers?
Judge Alex Stein, who agreed with the final result, skipped over all the landmines Grosskopf stepped on in his opinion. He relies on data from the Central Bureau of Statistics regarding the size of Israel’s population in 2011, which did not reach the necessary threshold of 12 million inhabitants. Peter Stein described the retroactive amendment that increased the size of the market as “a demand behind which there is a clear economic-political rationale, and therefore it is appropriate to reject the nullity claim outright.” And with regard to the maneuver that his two colleagues conducted to combine the language with the purpose, he came out against them unequivocally: “The clear language of the law, which is not implied in two ways, should receive priority status. Such cases, even if it is found that an oversight fell under the hands of the legislator, it is not It is our duty to regulate through judicial legislation. We must leave this task to the legislator, insofar as he believes that he has erred. In the case before us, the definition of ‘market’ as ‘a country or a separate customs territory’ is clear and is not ambiguous. This definition embraces each and every country, Including the State of Israel. For this reason, if we had found that in the entire tax year 2011 the State of Israel had 12 million inhabitants or more, we would have had to determine the appellants’ entitlement to the benefit accordingly.”