Deduction of Employee Team-Building Expenses – New Caselaw

Newsletter 11/2023

Deduction of Employee Team-Building Expenses – New Caselaw


Labor court decisions from recent years testify to a trend towards recognizing social team-building events for employees as making a substantial contribution to the employer’s business well-being, due to the sense of cohesion among employees, creating “pride” in the place of employment and increasing motivation and employee identification with the workplace.


In April 2018, the Tax Authority published a guideline which recognizes team-building events as a real business need which can contribute to the employer’s benefit, such that the value does not need to be credited to employees. However, it sets forth several strict conditions, which only where they are met can such an event be seen as one where benefit to the employer exceeds benefit to the employee, and accordingly there is no need to credit the value to employees. Thus, for example, employees are not eligible to bring spouses/life partners to the team-building event, the activity must be held in Israel during the workweek, and its coat is limited to the amounts indicated in the guideline.


Recently, a new decision of the Regional Labor Court was published (Social Security Case (Civil Case) 10162-11-20 Shekel and Co. Law Offices v. The National Insurance Institute) in which the court was asked to decide on the question of whether the plaintiff was the “main beneficiary” of holding team-building events. In this case, the team-building events were held abroad over the weekend and included shared team-building activities for all employees but no professional lecture. Although the court recognizes the employer’s clear business interest in holding team-building activities, and the team-building activities’ importance for the employer’s business success, the court concluded that the value should be credited to the employees, since the employees derived substantial enjoyment from the activity.

We would like to clarify that we don’t understand the court’s arguments. On one hand, the court does not rule out the substance of the Tax Authority’s guideline stipulating that team-building activity can be viewed as benefiting the employer, the value of which does not need to be credited, and even concludes that there is no need to meet all the strict tests stipulated in the guideline. On the other hand, the court states that previous conclusions of the Regional Labor Court, according to which there is no need to credit the value of clear team-building activities, is not binding upon it. And it is not clear at all how and whether it can be proven that the employees derived substantial enjoyment from the team-building activity.


We might mention that, to the best of our knowledge, even civil servants hold team-building events that include hotel stays, which do not meet the tests stipulated by the court, and some do not even meet all the provisions of the guideline, without the value being credited to the employees.


The plaintiff appealed against the decision’s results, and we believe the court’s conclusions may be changed by the National Labor Court, or at the very least clarified.

The Supreme Court’s latest decision in the case of Ituran Sport Kiryat Shmona stands in contrast to this position. This decision proposed an auxiliary test for identifying employee benefits which must be credited: Does the benefit save expenses the employee would incur in any case? As a rule, the Court set forth that expenses for social team-building of employees would be seen as expenses that serve the employer, since although team-building events cause employees some enjoyment, they are held within the workplace and for its needs. Therefore, it is impossible to conclude that team-building events save employees expenses they would have incurred anyway. The Court also emphasized that when the type and nature of the team-building activity is dictated to employees by the employer, without leaving them free choice, the expense should not be seen as a “benefit” for the employee. Although the decision concerns daily team-building events held in Israel, we are of the opinion that implementation of the tests must also be identical for other team-building activities.

We concur with the Supreme Court’s position, and we believe the Regional Labor Court erred in its categorical conclusion, since there are cases in which the employer is the main beneficiary of holding employee team-building events, even if the employee derives some enjoyment, and the employee did not save expenses it would have incurred in any case.

It should be noted that our firm is currently holding several legal proceedings regarding team-building activities that do not meet the provisions of the guideline.

For additional information, contact Adv. (CPA) Shahar Strausshttp://mailto :[email protected] or Adv. Shiran Polishuk from our firm.