Courting Couple: Bar Refaeli, Leonardo DiCaprio and The Joys of Tax

Israel's Supreme Court must rule whether home shared by supermodel and movie star was 'family unit' under Israeli law, cancelling $2 million tax demand

It sounds like a Netflix elevator pitch: A supermodel, a movie star, and a criminal indictment for evading $2 million in taxes.

Welcome to the legal tangles of Bar Refaeli - now a happily married mother living in Israel with her local tycoon husband, hosting Eurovision and featuring in poster campaigns for her successful fashion and eyewear chains.

A decade ago, Bar Refaeli was Israel's most noticeable export since the Jaffa orange, gracing magazines and red carpets as the celebrated squeeze of Leonardo DiCaprio, with whom she shared a home for nearly six years until they split in 2011.

From the tax year 2007 onward, Refaeli reached an agreement with the Israel Tax Authority that she would be classified as non-resident because she was living permanently in the US with DiCaprio. She returned permanently to Israel at the end of 2012.

But in January this year, Israe’s public prosecutor announced plans to bring criminal charges against Refaeli and her family for non-payment of tax and concealing income of more than $6 million between 2009 and 2012. In a separate but related civil case, a district court in April rejected Refaeli’s appeal against a tax demand for more than $2 million on earnings of $4.6 million in 2009 and 2010.

The court found that, for tax purposes, Refaeli had remained in Israel even when she was living in the US.

Israel decides tax residency based on several factors, such as the number of days spent in the country during a one-year or three-year period, and the location of the taxpayer’s family, work, and home. No single element determines residency for tax purposes, which is determined by whether the taxpayer’s “center of life” is in Israel.

One basic measure is whether a taxpayer has spent 183 days in the country in a single year, or 425 days over three consecutive years. But it’s not a deciding factor and can be rebutted by either the taxpayer or the authority. 

The district court ruled in April that the US household shared by DiCaprio and Refaeli was not a “family unit” as understood by Israel’s tax code, with the judge noting that they were unmarried and childless. The court also noted that Refaeli, during trips home to Israel, stayed at her parent’s house. That Israeli residence, said the court, was her true “family unit.”

DiCaprio’s failure to appear in court to back up Refaeli’s description of their domestic arrangements further undermined the judge’s faith in their relationship.

On July 18, Refaeli’s lawyers filed a 30-page Supreme Court appeal against April's district court ruling, ripping into the district court judge for questioning the legitimacy of Refaeli’s cohabitation with DiCaprio and inviting him to enter the 21st century.

A family unit “is a flexible definition that allows for a wide range of relationships, which is not confined to the conservative and monolithic definition of a family consisting of a married man and a woman who have children,” says the appeal.

Apart from their much-documented public appearances together at basketball games, restaurants and galas, Refaeli had also presented the district court with photographs from the couple’s personal album to demonstrate the established and intimate nature of their relationship.

For six years, Refaeli and DiCaprio were “a couple for all intents and purposes” - a rare achievement in the shifting world of celebrity relationships, the appeal notes. They shared a life, planned a future and discussed how many children they would have together.

The court should weigh her tax residency in Israel against her sex residency in the US

In other words, Refaeli may have visited Israel for more than the maximum 183 days in one of the years in question, but the court should weigh her tax residency in Israel against her sex residency in the US.

The appeal also criticized the “excessively conservative” ruling by the lower court that Refaeli’s family unit, as an unmarried woman aged 24, was her parent’s home in Israel, and the judgement that she was therefore an Israeli tax resident while she was living with DiCaprio.

“It is only natural that a Jewish woman who lives abroad, whose family is close to her, whose routine includes flying around the world, and she can afford to pay for the flights, will spend Jewish festivals with her family whenever her life abroad makes it possible,” the appeal said.

As for Leonardo’s non-appearance in court, the appeal argues that celebrities like DiCaprio, “whose reputation is valued in the hundreds of millions of dollars,” don’t rush to submit themselves “to hostile cross-examination in a foreign country.”

We await the Supreme Court proceedings with interest.