The Tel Aviv Magistrates Court has rejected most of a VAT claim brought by Mercantile Discount Bank against a company that bought property from it in Haifa. The ruling was reported on 27 October 2026. The bank sued for about ₪1.14 million and was awarded ₪137,898. The judge held that responsibility for the legal failure "falls on the bank".
A ₪5.9 million deal with no VAT on top
In November 2014 the bank sold the basement, the ground floor and part of the first floor of a building at 65 Haatzmaut Street in Haifa for ₪5,904,000. The contract said VAT would be paid on top of the price.
The buyer, a company called Campus Haatzmaut 65, paid ₪904,000 on signing. It transferred the remaining ₪5 million in two payments, in December 2015 and January 2016. In total it paid the base price and no VAT above it. The property was registered in the company's name in March 2016.
According to the company, a bank representative told its manager that the VAT matter had been "arranged". The company's lawyer backed that account.
The bank remembered in October 2021
The bank's internal audit later found the VAT missing. Its first approach to the buyer came in October 2021, about six years after the second payment.
In court it emerged that the bank had reported the first payment to the tax authorities as VAT-inclusive, and its own lawyer had described the payment in writing as "acceptable". Only one witness testified for the bank. The outside lawyer was not called, and the audit findings were not produced. The judge said that worked against the bank. She also rejected the argument that the bank's size and its many departments explained the slip.
Why most of the claim was struck out
A business that pays VAT on a purchase can generally offset it as input tax, but only within five years. The buyer asked the Tax Authority whether that deadline could be extended. The answer was that it could not.
Had the bank asked for the VAT on time, the buyer would have paid it and deducted it on its own VAT return, at close to no real cost. Six years on, every shekel it pays is gone for good. The judge found that charging it now would impose a large and unfair cost, because the bank had in practice given up the claim for years.
The claim for VAT on the second payment, about ₪850,000, was therefore dismissed.
₪137,898 on the first payment
The first payment was different. The bank had reported it as including VAT, and the buyer had deducted that VAT on its own returns. Having already taken the deduction, the buyer was ordered to pay the bank ₪137,898 plus linkage and interest. The bank had asked for ₪162,720, and the court awarded only the amount the bank itself had reported.
The buyer also argued that the claim was time-barred. The court rejected that, because the company had earlier undertaken not to raise the defence. Neither side was ordered to pay costs, since the bank's win was small.
Checks for your next sale or purchase
The seller here was a bank, but the same mechanism applies to any osek murshe selling equipment, a vehicle or property to another business. VAT that is not collected on time becomes a debt that is very hard to collect later, because the buyer can no longer offset it.
On the selling side, VAT should appear on the tax invoice as a separate line, and the payment should be checked against the invoice on the day it arrives. An employee saying "it's sorted" does not replace the invoice. What a business reports to the Tax Authority also serves as evidence of what was agreed, as the bank found with the first payment.
On the buying side, a tax invoice for a large purchase should go into the VAT return close to the date it was issued. A buyer who deducts VAT it never actually paid, as this one did, may have to hand it back.
The rules on deducting input VAT and their deadlines are in our input VAT guide.