Tel Aviv District Court judge Bracha Ofir-Tom supported an appeal by Professor Yair Tauman, a senior lecturer at the Tel Aviv University law faculty, against Israel taxing income he made abroad from 1990 to 1997, teaching at New York University.

Essentially, the judge's decision prevents Israel from taxing income an Israeli makes abroad from doing the same job he or she regularly does in Israel.

Tauman appealed against the Income Tax Authority's right to tax him in Israel, under article 5(1) of the Income Tax Law, on his income made abroad.

Under Article 5(1), before Amendment 59 dating from 1984, the income of an Israeli resident working abroad at the same job he regularly does in Israel, is taxable in Israel.

Two key questions were debated: Whether Article 5(1) applies to Tauman's case, and whether his work abroad is the same work he did in Israel.

The article stipulates that the job will be considered the same if the only difference is that abroad, the person earned the income through salary, as opposed to being independently employed in Israel, and vice versa.

On the first question, Ofir-Tom ruled that Article 5(1) cannot be enforced for a technical reason - because the secondary legislature neglected to institute appropriate regulations. The Finance Ministry should have laid down rules, she said, backed by the approval of the Knesset's Finance Committee. The rules should have factored in parameters laid out in Article 67A of the law regarding residence outside Israel and other things.

As the secondary legislature did not institute such regulations, she ruled, the Income Tax Authority cannot claim that rules were indirectly instituted in other regulations.

Accountant Avi Heller of Kesselman & Kesselman PwC said that the ruling means Israelis, such as university lecturers on sabbatical and workers at hi-tech companies will not owe tax on work done abroad in similar cases.

Heller estimated that many Israelis who paid tax on income made abroad will sue for rebates.

However, in any case the ruling retains applicability only until year-end, when the tax reform kicks in. Under the new law, coming into force from 2003, tax will be charged on a "personal" basis - wherever the person made it, as opposed to the current "geographical" basis.

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