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The Eliezer Fishman group of companies, which together lost about NIS 1.3 billion from speculating in the Turkish lira, may not be able to recognize these losses for tax purposes. The difference to their collective bottom line would be about NIS 400 million.

The losses that the Fishman companies incurred would have sufficed to erase all the corporate tax the companies would have owed, if they could offset the minus.

But if the Income Tax Authority indeed does refuse to recognize the losses, it would prevent the group from reducing its loss by 31%, which is the applicable rate of corporate tax. That 31% of the losses amounts to NIS 400 million.

Accountant Nadav Hacohen explains that non-recognition of the losses could result from the Zvi Brenner ruling handed down by District Court Judge Bracha Ophir-Tom in 1999.

The judge had set a precedent, under which for tax purposes - companies may not offset losses from transactions in futures that had not been carried out as part of their core business.

In other words, if a company's core business is not forex trading, and it loses money from speculation like the Fishman companies did, then it cannot offset its losses from its tax bill.

That rule does not apply to hedging transactions, which are considered part of a company's regular course of business.

Two of the Fishman companies that had engaged in Turkish lira speculation are publicly traded: Alliance Tire Company (TASE:ALIN) and Darban Hashkaot (TASE: DRBN).

Darban stock

Alliance chairman Isia Tchetchik explained that he decided to invest in the Turkish lira because over the years, it had tracked the euro. Alliance does business in Europe, but not in Turkey. Ergo if Alliance had invested in the euro, it could have been considered hedging, but that cannot be said of investment in the Turkish lira. Unless, that is, the tax authorities buy Tchetchik's arguments that investment in the lira is tantamount to investment in the euro and that therefore, his transactions can be considered hedging.

Hacohen says that the Brenner precedent is a problematic one, and the Income Tax Authority would do well not to rely on it. It should take advantage of Fishman's fiasco to clarify that it does recognize losses from transactions in futures, even if done by companies that do not specialize in forex trading.

Income Tax Authority director Jacky Matza commented briefly that the authority has not yet examined the case of the Fishman losses and has therefore taken no stand yet on whether or not to recognize the losses.

Alliance commented that the company is aware of the Brenner precedent and does not wish to comment.