Court Rules: NSO Company Evaded Millions in Taxes

The Lod District Court ruled that NSO carried out an artificial transaction to evade approximately $8.6 million in taxes on dividends. The landmark ruling rejected an appeal by Q Cyber Technologies, determining that the use of a shell Israeli company was intended to convert profit transfers into loan repayments and save taxes.

The Central-Lod District Court accepted the state's position and ruled that the acquisition of NSO and the repayment of loans that financed it constituted an "artificial transaction" aimed at evading tax on dividends, totaling approximately $8.6 million. In a landmark ruling, the court rejected an appeal by Q Cyber Technologies Ltd. against the tax assessor's decision regarding withholding assessments issued to the company amounting to millions of shekels. According to the state, had the foreign parent company directly acquired NSO, the transfer of profits of about $86 million would have been subject to tax as dividends at a rate of approximately 30% ($25.8 million). However, the use of "Q Cyber," an Israeli shell company, was intended to convert the fund transfer into a loan repayment rather than a sale, thereby saving tax at a rate of 10% of the amount – i.e., about $8.6 million. The court imposed costs of 40,000 shekels on the company to the public treasury. The Central District Prosecutor's Office stated that the ruling emphasizes the importance of proving genuine commercial reasons in complex transactions and strengthens the principle that tax planning cannot serve as a cover for an artificial transaction.