Testimonies from Israeli supermodel Bar Refaeli's tax evasion case have shed light on real estate developers’ practice of giving discounts to celebrities, including Refaeli, in exchange for the celebrities' approval to use their names to promote projects.
Refaeli is currently in the midst of a court battle over whether she should pay taxes on income earned during the years 2009 and 2010 - a period throughout which she claims she had lived in the United States with Leonardo DiCaprio - after The Tel Aviv District Court rejected her appeal in April. Refaeli is likely to appeal her tax ruling to the Supreme Court.
Dafna Katzir, vice president of marketing for the Israeli real estate company Habas Group, told the court that it agreed to pay part of Refaeli’s rent in Tel Aviv’s Yoo Towers so that the model would “be at the building, walk through the hallways, go to the gym, bring her friends.
"Simply creating the impression that Refaeli chose the project and lives there would make many people consider it desirable," Katzir said.
In his ruling, Judge Shmuel Bornstein wrote, “Rare are the cases when gifts are free, particularly when it’s a business deal,” and thus explained that the rent discount should be considered income that needed to be reported for tax purposes.
Nevertheless, the celebrity discount Refaeli received was a marginal issue while the court reviewed her appeal. The model's discount totaled some 210,000 shekels, (approximately $58,100) but Bornstein noted that a company offering a celebrity a discount in exchange for being able to use the celebrity’s name was a fundamental issue.
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Bornstein ordered Refaeli to pay eight million in unpaid income tax for the years 2009 and 2010, during which she earned 16 million shekels ($4,425,700). In addition, Refaeli could be facing criminal charges, pending a hearing.
The high-profile case may have a deterring effect on Israelis who need to report income abroad. It can also impact how discounts for celebrities are reported as income.
In the Yoo Towers incident, Habas paid homeowner Avi Oron $52,555 to subsidize Refaeli’s rent. The Refaeli family paid another $2,500 a month for the apartment. Oron recieved a total of 25,000 shekels a month in rent. Katzir said the 190,000 shekels were the difference between what Oron wanted to charge and what the Refaeli family was willing to pay.
“Since it was important for branding purposes that Refaeli lives in the Yoo Towers, we agreed to make up the difference by paying Oron,” said Katzir.
Herzl Habas, who was chairman of Habas Investments, said that one newspaper mention tying Refaeli to the project was enough to create the desired effect. “You want there to be awareness that she lives there,” he said. “If it’s secret, you haven’t achieved anything.”
The judge rejected statements by Refaeli and her mother Tzipi, who claimed that they hadn’t been aware that Habas was paying Oron. Katzir also indicated that the Refaeli family would not have taken the apartment if the rent hadn’t been somehow subsidized.
Bornstein noted that the model's family knew the Habas group was using her name, which she considers a valuable asset, regardless of whether she gave its approval explicitly or by not objecting.
Bornstein also noted that Refaeli gave no alternative explanation for the $52,555 payment.
The case also touches on the relations between Refaeli and the W Towers' entrepreneurs.
Under an agreement signed between Tzipi Refaeli and Canada Israel — which is responsible for the W Towers project — the company committed to pay full rent for three years to apartment owner Shlomo Ilya so that Refaeli could live there. Since she appealed a court ruling regarding her income earned for the years 2009 and 2010, that period included only the last two months of 2010, during which he company paid $5,530 in rent.
Bornstein ruled that this, too, was a promotional arrangement that should be considered income.
Attorney and accountant Dr. Itamar Kochavi said that under Israeli law, all forms of income need to be reported to the Israel Tax Authority, regardless of whether the person received money or something with a monetary value.
“Even if I give someone legal services for free or for a reduced price, that person needs to pay taxes for it,” he said.
Should a celebrity receive discount on an apartment, the celebrity would need to pay income tax on the discount and real estate purchase taxes based on the apartment’s full value, if the apartment is being purchased.
The legal proceedings against Refaeli include allegations that she failed to report revenues totaling millions of shekels, including rent subsidies, a discount on an apartment purchase, and the use of luxury cars.