Max IT Follow-Up: The VAT Ruling and What It Does to Earnings Quality
The VAT ruling cut NIS 131 million from Max IT's 2025 net profit after tax and turned the issuance segment from a normalized NIS 130 million profit into a reported NIS 1 million loss. That does not mean the operating engine broke, but it does mean foreign-activity earnings now need a more careful quality read.
The Ruling That Forces a Second Read of 2025 Earnings
The main article argued that Max IT's business kept growing in 2025, but that the real question was whether the growth still translated cleanly into earnings. This follow-up isolates the August 2025 VAT ruling because it did more than create a one-off charge. It changed how reported profit, normalized profit, and issuance-segment economics should be read.
The first point: almost the entire gap between reported 2025 and the company's preferred underlying 2025 sits here. Reported net profit was NIS 187 million and ROE was 8.7%. Excluding the ruling, net profit would have been NIS 318 million and ROE 14.9%, versus NIS 273 million and 14.1% in 2024. This is not a small accounting disturbance. It is a NIS 131 million after-tax gap and a 6.2 point hit to ROE.
The second point: this is not only headline damage, it distorts the operating read. In 2025, revenue rose 10% to NIS 2.465 billion, revenue from card transactions rose 12% to NIS 1.596 billion, net interest income rose 6% to NIS 847 million, and credit loss expenses fell 22% to NIS 169 million. Without isolating the VAT ruling, a quick reader can misread the earnings decline as business weakness. That is the wrong conclusion.
The third point: calling the event one-off and moving on is also too easy. The charge came out of litigation over the VAT treatment of revenue components in foreign cardholder activity. In other words, it touches the economics of the foreign business, not a random cost line with no link to profit quality.
Why This Is Not a Standard One-Off
The chain of events is longer than the NIS 170 million charge that entered the accounts. The first assessment covered January 2012 through August 2016. After the objection and litigation process, the remaining charge stood at about NIS 83 million plus linkage and interest. The second assessment, for September 2016 through June 2020, was rejected at the objection stage and set a charge of about NIS 180 million plus linkage and interest. After the August 6, 2025 judgment, the company also received a third assessment for July 2020 through March 2025, totaling NIS 273 million including linkage and interest, and objected to it in January 2026.
| Layer | What the filing says | Why it matters for the earnings read |
|---|---|---|
| First assessment | About NIS 83 million plus linkage and interest, after the Eilat component was reduced | The dispute is not new. It has been running for more than a decade |
| Second assessment | About NIS 180 million plus linkage and interest | The exposure did not stop with the earliest years |
| Third assessment | NIS 273 million including linkage and interest as of the assessment date | Even after the judgment, the tax authority issued a new assessment that did not apply the ruling the way the company reads it |
| 2025 accounting recognition | NIS 170 million pre-tax, NIS 131 million after tax | This is why reported 2025 earnings fell sharply even while activity itself kept growing |
The substance of the judgment matters as much as the amount. The court held that for underlying transactions at foreign merchants, card-present transactions and card-not-present transactions in certain sectors should bear zero-rate VAT on the interchange component. By contrast, the rest of the card-not-present transactions at foreign merchants should bear full-rate VAT. The same framework was applied to the foreign-currency commission component.
That is the core issue. In foreign activity, Max does not rely only on a plain domestic fee. The average interchange rate on foreign transactions is higher than the domestic interchange rate, and it varies by geography and by the split between card-present and card-not-present transactions. On top of that, when the customer pays in foreign currency and is not billed in that same currency, the company also charges an FX commission. So the VAT ruling hits a relatively rich revenue pocket, not a marginal line item.
One more point matters here. Even after the accounting charge, the story is not closed. The company says it is still studying the implications of the ruling and considering its next steps. As of the report date, the Supreme Court had already approved an extension of the deadline for appeal, and the company also says the year-end provision already covers all three assessments as well as the periods after them through December 31, 2025, including linkage and interest. That means the NIS 170 million is not a final price tag. It is an updated estimate inside a legal and implementation process that is still not fully settled.
Where the Segment Read Gets Distorted
The company manages the business through two segments, issuance and acquiring. For segment profitability, management itself says the measurement is based in part on assumptions and estimates. That matters, because even before the VAT ruling, segment profit is already a management layer rather than a pure statutory line.
In the issuance segment, the VAT ruling changed the picture completely. Segment revenue rose 11% to NIS 1.941 billion. Within that, card-activity revenue rose 14% to NIS 1.317 billion, net interest income rose 5% to NIS 601 million, and credit loss expenses fell 19% to NIS 171 million. Those are not the numbers of a segment whose engine broke.
And yet, on the reported basis, issuance moved to a net loss of NIS 1 million, versus a NIS 101 million net profit in 2024. Once the ruling is stripped out, the same segment ends 2025 with NIS 130 million of net profit. This is not a case where a one-off only smooths the edges of the line. It is a case where a single legal event removes almost the entire segment profit and makes a superficial segment read misleading.
That leads to the more important analytical conclusion. In 2025 the issuance segment still grew in volumes, net interest income, and card-activity revenue while credit losses fell. If one looks only at the reported segment loss, the operating direction is missed. If one looks only at the NIS 130 million normalized profit, the reader misses the fact that part of the historical economics of foreign activity is now being re-tested through tax. Each read on its own is incomplete.
How Earnings Quality Should Be Read From Here
The right way to read 2025 now has three layers, and each answers a different question.
Reported profit answers the accounting-conservatism question. It already includes the cost the company decided to recognize after the ruling, so it matters for capital, reported profitability, and loss-absorption analysis.
Normalized profit answers a different question: what the operating direction of the business was without the one-off recognition. On that basis the picture improved. Normalized net profit rose to NIS 318 million and ROE to 14.9%.
Earnings quality sits exactly between those two readings. This is not only a question of whether the company grew, and not only a question of whether it booked a one-off. It is a question of how much of foreign profit, especially interchange and FX commission, depended on a tax interpretation that now looks weaker than before. So the charge is one-off in the 2025 accounts, but not economically random.
The company tries to narrow that concern by saying the effect of the ruling on future profits is not expected to be material. The next sentence matters just as much. It says that this is forward-looking information based on preliminary, non-final assessments while the company is still learning the implementation requirements and the full implications, and that there is no certainty the estimate will be realized. That is an important difference. Anyone who adopts the normalized profit read also needs to adopt a higher level of caution around the forward assumptions behind it.
Bottom Line
The VAT ruling does not mean Max IT ended 2025 with a weak business. On the contrary, most of the operating indicators moved in the right direction. But the ruling does mean the 2025 earnings line can no longer be read without separating three things: activity growth, the accounting provision, and the historical profit quality of the foreign business.
That is exactly where earnings-quality analysis matters more than a plain report summary. It is a mistake to read 2025 as an operational collapse. It is an equal mistake to dismiss the event as pure one-off noise. The more accurate read is that Max entered 2026 with an operating engine that still works, but also with a new burden to prove that its normalized profit is not only easier to read, but also a sturdier base after tax, implementation, and the eventual resolution of the dispute.
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