From a substantive perspective, a shareholder has the right to withdraw dividends shortly before selling the shares in order to sell the shares themselves, without the distributable profits. Moreover, Section 94b of the Income Tax Ordinance not only does not preclude the aforementioned practice, but also creates a "tax fiction" as if the taxpayer had distributed a dividend, even if he did not do so in practice. This is in order for the taxpayer to benefit from the dividend tax rate, without being required to distribute it, while ensuring tax neutrality.

There is no impediment to the owners of a company with accumulated profits selling only the shares themselves, without the profits, when the profits are distributed for this purpose before the sale. In order to maintain as much true neutrality as possible, it is appropriate in such cases to allow the distribution of dividends before the sale, so that a taxpayer who owns a company will not be constantly "on guard" during the management of his business, in case the day comes when he will want to sell the company. Any other decision will cause shareholders to withdraw dividends on a regular basis in order to prevent profits from accumulating in the coffers and in order not to find themselves with profits at a preferential rate that they cannot distribute before the sale.

It should be clarified that the wording of Section 94b of the Income Tax Ordinance states that it shall apply to individuals but in relation to shares acquired before the "determining date," January 1, 2003. However, according to the Supreme Court, the reason for this is not because the legislature intended to distinguish between an individual who acquired shares before the determining date and an individual who acquired shares after it, but rather because there was supposedly no longer a need for the "fiction" after that date in light of the unification and alignment of the tax rates that apply to the individual, both for capital gains and for dividends. However, the provision of the section did not take into account that in special cases, there is no match between the tax rates.

Even if, according to its wording, Section 94b of the Income Tax Ordinance does not apply, the purpose underlying it is correct and appropriate. If the taxpayer acted in accordance with the substance of the law and distributed the dividends in practice without having to use Section 94b of the Income Tax Ordinance, no claims can be brought against him. In other words, even if it is not possible to apply Section 94b of the Income Tax Ordinance in our case, the actual distribution of profits, in a way that eliminates the need to use the section, is not flawed from a substantive perspective.