Settlement approvalClass action

Excess tax withheld at source: settlement in a class action against Mizrahi Tefahot and other banks

According to the bank's annual report, in April 2013 the court approved a settlement and gave it the force of a judgment, in a class action alleging that the banks withheld excess tax at source from interest and dividends by not deducting the fees from the yield.

Background and facts: tax withheld at source from interest and dividends

The details here are based on the contingent liabilities note in Mizrahi Tefahot Bank's financial report, and on a report on Walla from the day the claim was filed. The full text of the settlement and of the judgment was not found openly online.

According to the report, in November 2008 a claim and a motion to certify it as a class action were filed in the Tel Aviv District Court. The defendants were Mizrahi Tefahot, Bank Leumi, First International Bank and Bank Igud. The amount of the claim according to the report was NIS 68 million.

According to Walla, the class plaintiff was Noah Perlman, through attorneys Arnon Garfi, Ram Efrati and Moshe Holtzman. Walla reported that the class's damage was estimated at NIS 43 million, and that the plaintiff's personal damage in the years 2004 to 2007 was estimated at NIS 534.

The parties' arguments

According to the plaintiff, the banks overcharge customers who hold bonds or shares. According to the claim, the banks do not deduct the fee from the yield before withholding tax at source, and so the tax withheld is higher than required.

According to Walla, the plaintiff argued that the method shifts the tax base from a tax on enrichment to a tax on receipts, without taking the investor's expenses into account. It was also reported that, according to him, Bank Hapoalim deducts the fee before calculating the tax, and so was not sued. The sources checked do not set out the banks' arguments.

What the court held: approval of a settlement

According to the financial report, the parties held negotiations out of court. In April 2013 the court approved the settlement and gave it the force of a judgment. A settlement is not an admission by the banks of the claims.

The report does not set out the terms of the settlement: not the amount of the refund, not the payment mechanism and not the award and legal fees. Therefore there is no detail here of who is eligible and what they receive.

What it means for Mizrahi Tefahot customers

The class action dealt with a technical question: whether the fee the bank charges on yield events is deducted from the base on which tax is withheld. A customer who holds securities can check in the annual tax report the bank sends how the withholding was calculated. More claims on fees appear in the collection of class actions.

Sources

Frequently asked questions about court rulings against Mizrahi Tefahot Bank

What was the class action on excess tax withheld at source about?

According to Mizrahi Tefahot's financial report, it was alleged that the banks did not deduct the fee from the yield on bonds and shares before withholding tax at source, and so withheld excess tax.

Which banks were sued?

Mizrahi Tefahot, Bank Leumi, First International Bank and Bank Igud.

What was the outcome?

In April 2013 the Tel Aviv District Court approved a settlement and gave it the force of a judgment, according to the bank's financial report.

What is the amount of the refund to customers?

The sources checked do not set out the terms of the settlement or the refund amounts.

The full text was not found openly online; details according to a report, not yet verified against the text of the decision

How to cite

Not stated in the source (class action on excess withholding tax: against Mizrahi, Leumi, First International and Igud), Tel Aviv District Court. Source: Net HaMishpat (Israeli courts database), case Not stated in the source (class action on excess withholding tax: against Mizrahi, Leumi, First International and Igud).

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