Tax Update | January 2021

New Ruling – recognition of input tax deduction of renting space for a dining room for employees

Many companies allocate designated areas from their offices for a dining room, kitchen, food storage area, and more. In the Amdocs Israel Ltd. v. Director of Value Added Tax Netanya ruling, which was recently issued by the District Court, the issue before the court was whether a dealer (Amdocs) can deduct the input tax of rent, electricity, water, property taxes, and management fees for the part of the office that is used for a dining room for the employees.

Regulation 15A(b) of the VAT Regulations generally determines that input tax owed by an employer on account of an input due to its employees is not deductible. The term “input” of an employee is defined in this regulation as: “property or service such as meals, housing, gifts or entertainment, designated for the enjoyment, benefit, well-being or pleasure of the employee or his/her family member”.

The VAT authorities’ claim was that according to Regulation 15A(b) of the VAT Regulations, a taxpayer is not allowed to deduct the input tax in respect of rent payments for the allocation of the dining room, kitchen areas and storage areas including indirect expenses in connection with these areas, as these are included in the term “meals” that is mentioned in Regulation 15A(b) of the VAT Regulations.

The Court Ruling

The court rejected the position of the VAT authorities. In the ruling, the Honorable Judge Bornstein decided that although an input related exclusively to the meals provided by the employer to its employees, such as raw materials, kitchen equipment, cooking and baking work, tables, chairs, dishes, washing the utensils, cleaning of the tables and cleaning of the dining room floor – all of these are an integral part of the service known as “meals” for purposes of Regulation 15A and therefore are not deductible as input tax, however, this is not the case for inputs for rental payments in connection with areas that are used for dining rooms, including the accompanying inputs (electricity, water, property taxes, management fees, etc.).

In this matter, the court also emphasized that there is no difference between a situation in which an employee purchases his/her meal from an external source or brings his/her meal from home or where the employer provides him/her with the meals at the company offices.

In addition, Honorable Judge Bornstein referred to the circumstances in which workplaces provide seating areas, waiting areas, lunchrooms and even other areas in the workplaces that are not intended for meals but rather for rest or enrichment and even gyms – and the court ruled that rental payments and related expenses for these types of areas are also allowed as a deductible input tax.

From Gross Law Firm experience, VAT authorities have been auditing companies for years on this issue and tax assessments are being conducted on these matters. The VAT authorities have even published their position in tax decisions and/or tax rulings. As discussed above, this position of the VAT authorities was rejected in the court’s ruling. We are expecting that the Supreme Court will be required to rule on this issue.

According to this ruling, we recommend that each company examine this matter of whether input tax is deducted in respect of areas for the use of employees, including areas used as dining rooms and / or comfort areas and / or enrichment areas.


For further information, please contact Adv. Oren Biran, Partner, Head of Tax Practice at Gross Law Firm

Gross Law Firm (GKH) is one of the leading law firms in Israel, with over 170 attorneys. Gross Law Firm specializes, both in Israel and abroad, in various fields of law including Mergers and Acquisitions, Capital Markets, Technology, Healthcare and Life Science, Banking, Real Estate, Project Finance, Litigation, Antitrust, Energy and Infrastructure, Environmental Law, Intellectual Property, Labor Law and Tax. This alert is prepared as an informational service to clients and colleagues of Gross Law Firm and the information presented is not intended to provide legal opinions or advice. Readers should seek professional legal advice regarding the matters about which they are particularly concerned.

Oren Biran

Phone +972-3-6074547

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