Q Cyber's withholding-tax appeal in Israel (judgment of July 2026)

analysisQ Cyber Technologies Ltd appealed to Israel's Central District Court in Lod (TA 59924-03-22, Judge Avi Gorman) against assessments by the Kfar Saba Assessing Officer of tax that, according to the officer, it should have withheld for the tax years 2014–2015 and 2017–2018. The question was whether the sequence of steps taken to acquire an Israeli company, financed by loans from a foreign parent company and their repayment, was an artificial transaction under section 86 of the Income Tax Ordinance. As the judgment summarises the parties' positions, the Assessing Officer argued that the arrangement served to avoid tax on dividends and on the transfer of profits abroad, contrary to Israel's two-tier taxation under which dividends paid to a foreign-resident company are taxable. Q Cyber answered that the transaction followed accepted practice and rested on substantive commercial reasons for creating and operating an Israeli company, and that repaying the loan to its foreign parent was neither a dividend nor taxable. On 28 July 2026 the court accepted the Assessing Officer's position and dismissed the appeal. ^{1 2}

analysisAccording to the judgment, Q Cyber was incorporated on 2 December 2013 as a shelf company named L.E.G.D. Ltd and later renamed, and a 2026 review of the judgment by an Israeli law firm reports the court's finding that at the time of the acquisition it had no employees, no substantive operations and no bank account. The judgment records that between 2014 and 2018 Q Cyber repaid the loans from its parent OSY with loans and dividends it received from its subsidiary NSO; more than $86 million of the repayment funds passed directly from NSO to OSY rather than through Q Cyber's bank account. In 2016 NSO declared a dividend of about $38.4 million to Q Cyber, which stayed with NSO to repay Q Cyber's loans from NSO, and the roughly $86 million that Q Cyber paid to OSY repaid the loans taken to buy NSO's shares in 2014. ^{1 2}

analysisRelying on Q Cyber's own financial statements, the Assessing Officer also raised substantial doubt whether Q Cyber was in fact the entity that acquired NSO, or whether NSO's shares were transferred to it only after an agreement had been signed for the Luxembourg company to acquire NSO directly. This argument is reported in a review of the judgment, which states that the court took it into account. ²

analysisThe court held that the arrangement was an artificial transaction. Had NSO's profits been distributed directly to the Luxembourg company, the dividend would have borne 10% tax under the Israel–Luxembourg tax treaty; interposing Q Cyber allowed the funds to move as loan repayments without that tax. Q Cyber had not proved a fundamental commercial purpose other than tax: no contemporaneous evidence explained why the Israeli company was included, key representatives of the investment fund were not called as witnesses, and the commercial reasons put forward, including centralising marketing and distribution, finding further investments in Israel and defence-export regulation, were not shown to have shaped the structure when it was designed. This reasoning is the court's, as summarised in a law-firm review of the judgment. ¹

analysisThe court dismissed the appeal, holding that the payments to the foreign parent company were to be taxed as dividends rather than treated as loan repayments, and ordered Q Cyber to pay the Assessing Officer's costs of NIS 40,000. It cancelled the penalty for failure to withhold tax at source, finding that the circumstances did not justify a finding of fraudulent or false conduct. This is a district-court judgment, and the retained records do not show whether it was appealed. ^{2 1}

analysisOmri Lavie, a co-founder and shareholder of NSO, testified for Q Cyber. The judgment describes him as currently the controlling owner of Q Cyber through the chain of companies and, accepting the Assessing Officer's remark, as its sole shareholder with an interest in the outcome; it does not date that "currently", and Luxembourg register publications record that Lavie's holding company transferred NorthPole Newco to another person on 8 October 2025, when Lavie resigned as its manager, and notices of 28 and 30 October 2025 record his removal from the boards of Q Cyber Technologies S.à r.l. and OSY Technologies. The court described Eran Gorev, Francisco Partners' representative in Israel, as apparently a key figure among the Francisco Partners people who, Lavie testified, designed the transaction; according to Lavie, Gorev negotiated the purchase of the NSO shares and managed Q Cyber on Francisco's behalf shortly after it was set up. Gorev gave a statement to the Assessing Officer but was not called as a witness. ^{1 2 3 4}

analysisAccording to what the parties told the court, Francisco Partners sold its holdings in Q Cyber, and through it in NSO, in 2019, and the purchaser later sold them on to one of NSO's original shareholders. ¹