Tax Authority unable to collect NIS 1b in payments

Eran Yaacov / Photo: Jonathan Bloom , Globes

Regulatory concern about money laundering has resulted in Israel's banks refusing to open accounts for overseas taxpayers, leaving them unable to pay.

Despite the widening budget deficit, the Israel Tax Authority is being prevented from collecting about NIS 1 billion in taxes from abroad from foreign companies and other entities. In some instances, the Israel Tax Authority, headed by Eran Yaacov, has even issued a tax assessment to the companies owing the money. However, Israel's banks are blocking the money from coming into the country for fear that it would contravene international money laundering regulations. Even though much of the money is clearly legitimate, with no fear of money laundering, the money is not able to pass the demands set for the foreign companies by the Israeli banks, for opening an account for funds designated for the Israel Tax Authority.

A senior official at the Israel Tax Authority told "Globes," "We are talking about many hundreds of millions of shekels that are not reaching the State's coffers because of the obstacles placed by the banks. The total amounts to a billion shekels. We have one taxpayer who owes NIS 200 million. Tax funds that are waiting reflect revenue of billions taxable in Israel but we are not seeing the money."

The Israel Tax Authority source told "Globes" that they are able to "catch" many foreign entities, some proper and legitimate and others criminal, and issue tax assessments but the money doesn't reach Israel because there is no way that it can be deposited in an Israeli bank.

The overseas sources wanting to pay the tax have no way of opening an Israeli bank account for the money owed to the tax authority. An absurd situation has arisen in which overseas companies want to pay the tax but have no way of doing so and consequently receive a tax exemption because of the Israeli banks' money laundering regulations.

Gornitzky & Co law firm head of tax Adv. Daniel Paserman explains, 'There are two main types of such organizations. The first is foreign trusteeships with bank accounts abroad that are created by or benefit Israeli residents who pay tax in Israel. The second - foreign companies that operate in Israel for brief periods but have no branch or subsidiary in Israel. For example, a foreign company that provides construction services in Israel or various services in specific projects but has no routine operations here. Often therese companies or their employees owe tax in Israel."

Adv. Paserman adds, "Most of these foreign trusteeships do not have bank accounts in Israel because most of their assets and investments are abroad. Even if they were to ask to open a bank account in Israel, they would not succeed in doing so because Israeli banks are deterred from opening accounts for foreign trusteeships due to money laundering and regulatory considerations. Even though in any case the account is only for the purpose of paying tax, so the bank has no business motivation to help. I represent about 20 such trusteeships that currently find themselves in this situation."

In addition to trusteeships and foreign companies, Israeli who hold cryptocurrencies have also met with a blanket refusal by the banks to let them open accounts in Israel and deposit money.

Discussions are ongoing between the Israel Tax Authority, the Ministry of Justice's Israel Money Laundering and Terror Financing Prohibition Authority, the Bank of Israel and the Attorney General to find a way out of the impasse and devise a mechanism for opening such bank accounts but no solution is on the horizon. It goes without saying that the trusteeships and foreign companies have no interest in fighting the government on this issue so that they can pay the taxes owed.

In the past, the Bank of Israel held an account in which foreign entities could deposit funds for the purposes of tax payments and sources told "Globes" that the account accepted money until the end of 2018. But since the beginning of this year, any money sent to this account has been returned.

"Globes" found that it is the Israel Tax Authority, which is responsible for this changed situation in which the Bank of Israel's designated tax account has been blocked. The official reason is that the account does not allow the tax authority to identify who is the payee and credit them.

Regarding the banks, they have no interest in accepting the payments for fear that illicit funds are involved, thus leaving them open to sanctions, mainly from the US.

The Israel Tax Authority has confirmed to "Globes" that there are some tax payers from abroad that have not succeeded in paying their taxes.

The Bank of Israel said, "The claim in this article that the Bank of Israel blocks the possibility of transferring funds to the account designated for the Tax Authority is not correct overall or in principle but for reasons of confidentiality we cannot say any more than this. The banks in Israel are subject to accepted international standards and regulations and everything regarding money laundering rules."

The Israel Money Laundering and Terror Financing Prohibition Authority said that Israel's banks are subject to the money laundering regime in accordance with binding international standards including the obligation of identifying and recognizing clients, reporting to the Israel Money Laundering and Terror Financing Prohibition Authority, and monitoring and controlling unusual activities. As part of these obligations, the banks are required when opening accounts and implementing transactions to undertaken a process of "getting to know the client," which includes clarifying the source of the funds involved in the transaction. The Israel Money Laundering and Terror Financing Prohibition Authority adds that there is no blanket ban on the banks opening such accounts and conducting transactions but just the obligation of managing the risks in such transactions and consequently they are entitled to refuse to open such accounts.

Published by Globes, Israel business news - - on November 3, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Eran Yaacov / Photo: Jonathan Bloom , Globes
Eran Yaacov / Photo: Jonathan Bloom , Globes
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