Court ruling8/16/2026

Zara Franchisee in Israel Loses Tax Dispute Over NIS 108 Million Withdrawal

The Tel Aviv District Court partially dismissed the tax appeals filed by Joey (Yosef) Schwebel and his family-owned company. The court ruled that transfers totaling NIS 108 million were not loans but taxable dividend income.

Key facts

•Court: Tel Aviv District Court
•Tax years: 2015–2017
•Number of appeals: six
•Disputed transfers: NIS 108 million
•Estimated total tax: approximately NIS 70 million
•The case number and date of the judgment are not specified in the source

Who Was Involved in the Dispute

Schwebel controls the Gottex Brands Group, the principal Israeli franchisee of the international Inditex Group, which includes Zara, Pull&Bear and Massimo Dutti. The six appeals concerned tax assessments for the years 2015–2017 issued by the Israel Tax Authority’s National Assessment Unit, which handles large enterprises.

Why the Transfers Were Not Recognized as Loans

Schwebel and his company argued that the funds transferred to him and to related companies were loans, even though they had not been repaid for years. Judge Yardena Seroussi ruled that no precise and objective documents had been presented to substantiate the movement of the funds, the economic rationale for the transfers or the repayment terms. Moreover, these amounts were not recorded as loans in the companies’ financial statements.

What the Court Ruled

The court classified NIS 108 million as funds withdrawn by the controlling shareholder and ruled that they must be treated as dividend income. For substantial shareholders holding at least 10% of the rights in a company, the dividend tax rate is 30%; high income above the prescribed threshold is also subject to an additional 3% tax. The total tax resulting from the judgment is estimated at approximately NIS 70 million, including approximately NIS 57 million relating to the disputed withdrawals plus the additional tax, and approximately NIS 12 million relating to other charges.

The Appeals Were Only Partially Accepted

On several other issues, the court accepted Schwebel’s arguments. In particular, a credit balance of USD 50 million that he inherited from his parents was recognized as lawful and tax-exempt; the assessment relating to the conversion of balances into capital notes totaling approximately NIS 216 million was canceled; and several demands concerning dividends and imputed interest were also canceled. However, the court did not permit a loss from a real estate business in Canada to be offset against income in Israel because it was not proven that the business was managed from Israel.

What this means for you

A transfer of funds to an owner or to companies related to the owner does not become a loan merely because it is defined as such. In the absence of agreements, repayment terms, documentation of the movement of funds and corresponding entries in financial statements, the tax authorities and the court may classify the transfer as a dividend and impose tax, including an additional tax on high income.

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