An office in a cafe: the project and the legal debate

A cafe office was established in 2017 with the aim of allowing the self-employed to register Cafes as a recognized outlet. Since the expenditure in cafes does not meet the incidental test and in addition constitutes a mixed expenditure, the office in the cafe made sure to separate the expenses, and in the calculation of CPA It was concluded that 60% of the costs of the cafe are recognized expenses, and the rest are expenses that are not useful to generate income.

The traders pay for the coffee using an application that the coffee office has developed and receive two separate invoices: a red one for food expenses (which are not allowed to be deducted) and a green one for business and hospitality expenses (which are intended to be deducted).

The growth and attack of the tax authority

During the months of its operations in 2018, the project recruited hundreds of coffee shops (including the 'Cocoa' Louise' chains) which were bound by the agreement, and thousands of traders who benefited from this service.

In October 2018, Eran Ya'akov (director of the Tax Authority at the time, now director general of the Ministry of Finance) announced during Speech at the conference The board of accountants that the authority will not recognize these invoices, and this caused a drastic reduction in the activity of the "coffee office" which sued the tax authority.

The legal hearing

On November 29, 2018, a hearing was held in my district when a cafe ministry submitted a request for declaratory relief (for coffee expenses) by way of an opening statement. The request was denied. It is important to note that the request was not rejected on the merits of the matter but for technical matters: non-exhaustion of procedures and right to stand. The court states that a coffee office cannot be a party to the proceedings because the procedure is conducted between the authority and the taxpayers and the coffee office is not a party to the proceedings. However, even though Judge Gorman dismissed the claim on procedural grounds, he emphasized that the substance of the matter warrants discussion of the issue and that if the claims of the ministry in coffee are true, then a large number of taxpayers are not paying real tax.

The judge pointed out that the issue before him is important and that the tax system will undoubtedly try to shape its laws in a way that recognizes the true expenses of the taxpayers.

Today, the office in Kafe through attorney Doron Levy continues the process through a representative plaintiff and this after the assessment is issued.