ITA Appeals Mehir LeMishtaken Tax Ruling: Implications for Developers

In February 2026, we published an update on Ashdar Ltd.’s appeals against the Real Estate Taxation Administration’s decision to reject applications to amend purchase tax assessments. The Appeals Committee for Real Estate Taxation in Haifa accepted the appeals and ruled that Ashdar’s successful bids in Mehir LeMishtaken tenders and its entry into “lease agreements” with the Israel Land Authority (ILA) do not constitute “the purchase of a right in real estate” subject to purchase tax. Accordingly, the Appeals Committee ordered the Israel Tax Authority (ITA) to cancel the assessments and refund the purchase tax paid in the relevant projects.

The ITA subsequently appealed to the Supreme Court, seeking to overturn the Appeals Committee’s ruling. The outcome could have broad implications for all parties involved in the Mehir LeMishtaken program.

ITA’s Arguments

In its appeal, the ITA argues that the Appeals Committee’s ruling is erroneous for the following reasons:

• The ruling disregards the wording of the agreements, which provide for lease terms of 98+98 years, the fact that the leases were registered with the Land Registry, and the fact that the developers entered into agreements with apartment buyers to transfer the remaining leasehold rights.
• All components of the definition of the term “lease” are fulfilled, including use, possession, and payment of consideration.
• A distinction should be made between a performance contractor and a lessee. In this case, since the developers paid for the land, registered their rights to it with the Land Registry, and transferred rights to the buyers, they should be regarded as lessees rather than merely contractors providing construction services.
• The ruling is detrimental to certainty and stability in the real estate market.

Potential Implications for Developers and Applications for Purchase Tax Refunds

The ITA’s position, as presented in its appeal, focuses excessively on a formalistic and narrow interpretation of the agreements and does not give sufficient weight to the true economic substance of Mehir LeMishtaken transactions or the significant limitations imposed on developers in relation to the land.

Moreover, the ITA’s claim that the ruling destabilized the real estate market cannot justify continuing to collect taxes based on an erroneous legal interpretation.

What Should Real Estate Developers Do Now?

A successful appeal could substantially change the current legal landscape: developers will be deemed to have purchased a right in real estate subject to purchase tax and will therefore be unable to obtain a purchase tax refund. Conversely, if the ITA’s appeal is rejected, the determination that developers are not purchasing “a right in real estate” under particular circumstances of Mehir LeMishtaken tenders will become a binding precedent.

In the meantime, until the Supreme Court issues its ruling, we recommend that real estate developers that participated in Mehir LeMishtaken tenders and paid purchase tax assess whether they may be eligible for a refund. If eligible, particularly in projects involving significant purchase tax payments, we recommend immediately filing applications to amend/cancel the purchase tax assessments. While we can assume that processing of these applications will be frozen until the Supreme Court issues its ruling, it is important to file them now, to avoid losing the right to do so due to the statute of limitations (four years to file an application to amend a tax assessment).

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Adv. Maya Carmi Lubartovski is a partner and head of the firm’s real estate taxation practice.

Barnea Jaffa Lande’s real estate taxation practice provides comprehensive legal advice on tax planning and the full range of tax issues arising in connection with complex real estate transactions, including urban renewal transactions, combination transactions, consideration-based transactions, sales of residential apartments with building rights, purchasing group transactions, local authority transactions, expropriations, lease agreements, dissolutions of real estate associations, and more.