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Article 86 of the Income Tax Ordinance (New Version) stipulates that when a tax official concludes that a particular transaction which effectuates a reduction in the tax due is "artificial or invented," that transaction may be disregarded in fixing the amount of tax to be paid. In interpreting the term "artificial transaction," the Israel Supreme Court relied on Jewish Law (CA 265/67 Mapi Ltd. v. the Tax Assessor for Large Businesses, Tel Aviv, 21 (2) PD 593, per Justice Moshe Silberg).

Justice Silberg noted that Jewish Law holds a rather liberal attitude toward circumvention of the law through means of the law itself, in order to maintain the "flexibility and vitality of the ancient law, so as to enable it to incorporate changing patterns of life." Circumvention of the law by using the law is referred to in halakhah as ha'aramah, and there are various instances of its practice in Jewish law: for example, ha'aram ah to circumvent the prohibition against taking interest on a loan (see *Usury ). In some instances, the halakhah upheld ha'aramah; in others, it was rejected.

In his opinion, Justice Silberg discusses two examples, one of which was halakhically accepted, the other rejected. The first example involves the second tithe (ma'aser sheni). The Torah provides that one-tenth of an individual's yearly produce is to be set aside and taken to Jerusalem to be consumed there (Lev. 27:30–31; Deut. 14:22). The Torah likewise provides that the tithe may be redeemed for an amount of money equal in value to the produce, which is then taken to Jerusalem where it is used to purchase food; however, in that case an additional sum of money equal to one-fifth of the value of the produce must be added. The Mishnah, however, considers various methods for avoiding payment of the extra fifth. One such method is to give a sum of money equal to the value of the produce as a gift to a friend, who then uses the money to redeem the produce, after which he returns the money to the owner, relying upon the rule that if the tithe is redeemed by someone other than the owner of the produce, the additional fifth need not be given. Thus, through this fictive gift, the owner of the produce circumvents his obligation to add a fifth to the redemption money. This result was planned in advance, as the purpose of the gift of the money was to evade the obligation to add the fifth. The Mishnah itself cites this method as achieving this result.

The second example discussed by Justice Silberg, one rejected by the halakhah, involves the first tithe (ma'aser rishon). This tithe, also a tenth of the produce, is set aside prior to the second tithe and given to the Levites. According to an interpretation of the biblical passage (Num. 18:21f.), the obligation to set aside the first tithe only applies to that produce that is brought into the house through its entrance. If it is brought in by a circuitous way, such as through the roof, the first tithe need not be given. However, this method of evading the obligation was rejected.

Justice Silberg analyzes the difference between the two cases: viz. the acceptance of the ha'aramah involving the second tithe, and the rejection of that involving the first tithe. He concludes that "with regard to the second tithe, although the purpose was to obviate the obligation to give the additional fifth, the mechanism used and its legal effects are much broader and deeper. The ownership of the object (i.e., the money used to redeem the produce) must actually be transferred to the recipient (i.e., the one who actually performs the redemption) and all the necessary requirements must be satisfied. If anything related to the substance or scope of the transfer is omitted… the ha'aramah does not achieve its purpose." On the other hand, bringing the produce through the roof involves nothing beyond the exemption from paying the tithe. This act has no other significance.

Using the same standard, Justice Silberg concluded that the term "artificial transaction" in the tax law should be interpreted as referring to a transaction that has no substance or purpose other than the desired reduction in the amount of the tax. (See also Cr. A. 1182/99 Hurvitz v. State of Israel 54 (4) PD 85–88, per Justice Yitzhak Englard).

An example of the rule that communal enactments (takkanot ha-kahal) in the area of tax law be interpreted according to their language and not according to their intention which did not receive expression in the takkanah, appears in a responsum of R. Solomon b. Abraham Aderet. The question submitted concerned a communal enactment whose purpose was to increase the amount of taxes collected by the community. However, application of the terms of the enactment had the unforeseen result that a particular taxpayer's obligation was reduced. Rashba ruled that the clear language of the enactment must be applied (Resp. Rashba vol. 5 no. 282). The Israeli Supreme Court relied on this ruling as to statutory interpretation in general, and to tax law in particular (HC 333/78 Trust Association of Bank Leumi of Israel v. Administrator of Estate Taxes, 32 (3) PD 202, Justice Menachem Elon ).

In 1964 a tax museum was established in Jerusalem for the preservation of historical material relating to Jewish tax law and all matters touching on taxation in historic Israel in its earlier and later periods and in the State of Israel. In addition to various research projects, a periodical, Rivon le-Inyenei Missim, devoted to tax matters, is published regularly under the auspices of the museum.
