Following months of discussions between the Israel Tax Authority and the Ministry of Finance and the Ministry of Justice, a new voluntary disclosure procedure has been agreed on that will grant Israelis a period of grace during which they can legalize previously concealed capital. Those taking advantage of the procedure will have to pay tax, but will no longer be at risk of criminal proceedings, sources inform "Globes."
The Tax Authority is finishing off all the cases from the previous round of the procedure, which was very successful. Sources inform "Globes" that the Tax Authority's management has ordered the tax assessment officers to close all the cases by the end of the year. Cases in which no agreement is reached on the amount of tax to be paid will be returned to the investigations division for rejection of the request.
A number of legal representatives recently received rejection letters informing them that discussion of the cases had ended, and that the voluntary disclosure request had been rejected. "We received several rejection letters, although we were in the midst of discussions with the Tax Authority," one tax consultant told "Globes." "We were told that there was an order to close everything by the end of the year."
Immunity from criminal prosecution
It appears that closing cases opened in the previous procedure is in preparation for the publication of the new procedure. According to a senior Tax Authority source, the new procedure will take effect within two months of January 2018, one year after the previous procedure expired. Information obtained by "Globes" indicates that although some details of the procedure have not yet been settled, it will include tracks similar to those in the previous procedure, including an abbreviated track and an anonymous track that will appeal to those who did not manage to report their assets in the framework of the previous procedure.
In the previous procedure, which ended on December 31, 2016, NIS 25 million was disclosed in 7,400 voluntary disclosure requests, and the ensuing tax collected amounted to NIS 3 billion. Since that procedure expired, those who have concealed income have not been given the option of declaring their capital without risk of criminal proceedings. At the same time, the Tax Authority director has stated more than once in recent months that the Tax Authority was talking to the Ministry of Justice about renewing the procedure.
The Tax Authority stated, "The discussions about the procedure have ended, and it will be sent to the Attorney General for final approval."
The procedure is being sent to the Attorney General because of his exclusive authority to grant immunity to a person against criminal prosecution. Such immunity is the basis of the voluntary disclosure proceedings.
The timing of the new procedure's publication in the midst of a wave of information exchanges between countries and the international campaign against unreported capital is no accident. Israel has signed over 50 conventions for prevention of double taxation, in which some of the countries undertook to transfer information about income and funds of Israelis on their territory. Under these agreements, information about residents of Israel has been flowing to Israel in recent years.
In addition, the Tax Authority is now receiving detailed information under the FATCA agreement in which the Israel Tax Authority has begun sending information to its US counterpart, the Internal Revenue Service (IRS), about financial assets of citizens with an affiliation to the US. In exchange, the Tax Authority is receiving information about Israelis with accounts in the US. The Tax Authority will also soon receive information from many other countries in the framework of the CRS agreement initiated by the OECD. This agreement provides for automatic exchanges of information about financial accounts of foreign residents in Europe.
Advocate Itay Bracha, a managing partner and tax expert at the Bracha & Co. law firm, says, "Together with the more stringent penalties for tax evaders, the far-reaching measures being taken by the Tax Authority to catch tax evaders, and before the imminent beginning of international exchanges of information, the Tax Authority is giving another chance, perhaps the last one, to tax evaders to repent by reporting their assets outside of Israel, thereby saving themselves from investigation and criminal proceedings."
Voluntary disclosure tracks
Anonymous track: A track in which the taxpayer is not required to disclose his identity when submitting the request until the request is approved by the Tax Authority.
An abbreviated track: A track that saves on bureaucracy in cases on which the unreported capital does not exceed NIS 2 million, and the taxable income resulting from it does not exceed NIS 500,000.
Ordinary track: A track in which the taxpayer is revealed to the Tax Authority from the first stage of submitting the request, discloses his assets, and declares his unreported income.
Published by Globes [online], Israel Business News - www.globes-online.com - on November 2, 2017
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