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Supreme Court: Service to Foreign Residents May Be Subject to Full VAT

The Supreme Court’s ruling in the GFI Securities Limited (GFI) case, published in February 2024, determines not to regard a financial intermediary services transaction (brokerage services) involving both Israeli residents and foreign residents as two separate services, one of which is provided to an Israeli resident (who is subject to full VAT) and the other to a foreign resident (who is subject to zero VAT).


According to the court’s ruling, such a transaction should be considered a transaction that provides one service to two parties, a foreign resident and an Israeli resident in Israel. Thus, the transaction essentially denies the benefit of the zero VAT rate regarding service provided to a foreign resident. This ruling effectively overturns the verdict handed down by the district court in August 2021 on this matter.

The Legal Question

GFI, a British company that established a branch in Israel, brokered a financial instrument transaction between an Israeli bank and a foreign bank. For its services, GFI received separate fees from both banks. The Supreme Court addressed whether the fee collected by GFI from the foreign bank is subject to VAT at the full rate or whether no VAT should be applied under Section 30(a)(5) of the VAT Law. The ruling considered the qualification set forth in said section: “…No service shall be deemed to be provided to a foreign resident when the agreement is the actual provision of the service, in addition to the foreign resident, also to an Israeli resident in Israel…” It is important to note that there is no dispute that the fee charged by GFI to the Israeli bank is subject to the full VAT rate.

GFI Ruling

The district court ruled in favor of GFI’s position, stating that, in practice, each bank received a separate service from GFI. Hence, the service provided to the foreign bank is subject to a zero VAT rate under Section 30(a)(5) of the VAT Law.

The Supreme Court, however, reversed the district court’s ruling, stating as follows:

1. Joint service provided to a foreign resident and an Israeli resident negates VAT at zero rate – Amendment No. 22 to Section 30(a)(5) of the VAT Law, by adding the qualification therein following the Cassuto ruling, aims to obviate the need to determine in each and every case who is the primary beneficiary of the service in that transaction and to determine that the benefit of a zero-rate VAT will be revoked by virtue of the restriction not only when the foreign resident constitutes a “conduit” for providing the service to an Israeli resident in Israel, but also whenever the service is provided to an Israeli resident in addition to the foreign resident. (Namely, the benefit of zero-rate VAT will be revoked when providing the service jointly to both the foreign resident and the Israeli resident, regardless of the Israeli resident’s part in the transaction.)

2. The brokerage deal is a one-service transaction – The Supreme Court did not accept the district court’s claim that these were two separate service transactions—one for an Israeli resident and the other for a foreign resident—and ruled it was an artificial separation. The Supreme Court noted that, by its nature, the essence of a brokerage deal is joining two parties into one transaction. Therefore, it determined that treating the transaction as providing services to each party separately does not reflect the true financial essence of the service.

Moreover, the Supreme Court noted that the fact that a broker interacts separately with each client, invests different resources regarding each of them, and charges different fees from each client does not change the essence of the transaction as one service provided to both parties.


The Supreme Court’s ruling is inconsistent with the principle of transaction taxation per its true financial essence, since it will apply even when an Israeli resident’s share in receiving the service is minimal. Therefore, in light of this ruling, the legislature should consider enacting a suitable formula that can attribute VAT at zero rates for services provided to a foreign resident in cases in which an Israeli resident’s share in the transaction proves to be negligible.



Barnea Jaffa Lande’s Tax Department is available to answer questions about VAT issues and to support and represent Israeli and multinational companies.
Hanna Daher is a partner and Alon Davidovitch is an associate in the firm’s Tax Department.

Tags: Foreign Residents | Tax