In this article, we will review the appeal of a Magistrate Court ruling by a private individual, who sought restitution of VAT and purchase tax amounting to 174,541 ILS for the personal import of a boat.

A private individual imported a boat in May 2012, which he registered with the Transportation Ministry upon its arrival in Israel. Since then he has left and entered Israel several times on his boat, without any demand for payment from the Customs. In 2017, he realized that the Customs Authority collects import duties from boat owners, so he voluntarily turned to the Customs Authority in order to confirm that he does not owe tax. He was then required to pay VAT, purchase tax, interest and linkage, which he paid under protest and then filed a monetary claim to the court.

The Parties’ Arguments

The importer argued that the Customs Authority’s position, which is that a material import event establishing a tax liability occurs in every entrance of goods to Israel, is a forced, artificial position that does not reconcile with the prevailing economic reality. The actual import date of the boat is in 2012, and if the purchase tax were paid at the time, no further purchase tax demands would be imposed on subsequent entry nor would it be possible to demand retroactive payment. As for the VAT, the importer argued that is was already proven in the Magistrate Court that the importer sought to pay the required VAT at the time of registering the boat, but he was refused and told that the authorities would contact him. Either way, the VAT collection period has passed, five years after the boat first entered Israel.

In addition, the importer argued that adopting an approach that varies from the approach presented by the importer would result in an absurd situation in which the Customs Authority could collect tax from all boats entering Israel, regardless of whether the import process was previously completed and all taxes were paid in full.

On the other hand, the Customs Authority argued that submitting documents to the Transportation Ministry for registration does not exempt the importer from his duty to submit an import entry.

Moreover, the Customs Authority argued that according to the law, purchase tax is levied upon the import of goods; that the billing date is “when freed from the control of the Customs Authority”; and that the same applies to VAT. Under the Customs Ordinance, goods returned to Israel are dutiable as long as the owner of the goods did not prove that taxes were already paid. The goods may be released for consumption in Israel only after submitting an entry under the Customs Ordinance. Therefore, the importer should have released the boat from the Customs Authority’s control by paying his taxes, according to an entry he submitted, and even if he failed to submit an entry, he must still pay the tax.

As for its collection policy, the Customs Authority argued that over the years the Tax Authority enforced payment of import duties from importing maritime vessels to the extent possible, noting that maritime vessels enter Israel without passing established border crossings in which the Customs Authority has checkpoints. It was only just ahead of the onset of 2017 that Section 40 of the Ports Ordinance was enacted, under which a port manager may not permit the departure of a maritime vessel from the port unless all due taxes for the vessel were paid.

The Court’s Ruling

The court ruled that goods that were in Israel, left the country and were then returned to Israel are considered goods “imported” to Israel. Therefore, “import” is not restricted to the first instance, but includes each time goods enter Israel. The same applies according to Section 32 of the Value Added Tax Law:

“Importation of the following goods is exempt of tax:

…

(2) goods that were exported from Israel and then returned, and which – while abroad – were not repaired, renovated or improved, or which were repaired, renovated or improved within the scope of the supplier’s responsibility and for no consideration;”

In other words, even goods that were exported from Israel and then returned to Israel, are considered goods imported to Israel, unless they were not repaired, renovated or improved. Therefore, every entry into Israel is an import, not only the first time.

The court ruled that the importer has an obligation to submit an importer’s declaration, and until he does the boat is under the control of the Customs Authority, and the tax event date is the date in which the boat was released from the Customs Authority’s control – i.e. after the approval of the import declaration. The importer did not submit an import declaration, but that does not exempt him from tax, and for billing purposes he will be considered to have submitted an import declaration, with the billing date set as the date in which the import would have been approved. As noted above, as the importer repeatedly imported the boat, each entry of the boat, even if the importer did not submit an import declaration, constitutes a tax event. Since the importer did not pay the tax incurred in previous events, he is still required to pay the tax due in light of the April 2016 tax event.

The court rejected the importer’s appeal and charged him with 10,000 ILS legal costs.

[RA 54559-06-20, Frenkel V. Haifa Customs House; before judge Menahem Raniel, ruling given on 13.8.20. Frenkel represented by Adv. Rany Schwartz, Haifa Customs House represented by Haifa District Attorney’s Office]

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