Tax Authority's voluntary disclosure billions hit by red tape

Tax Authority chief Shay Aharonovich credit: Eyal Izhar illustration Tali Bogdanovich
Tax Authority chief Shay Aharonovich credit: Eyal Izhar illustration Tali Bogdanovich

The program, which hopes to collect billions of shekels from Israelis' concealed wealth, including in cryptocurrencies, is being dealyed by a bureaucratic U-turn.

In May Israel Tax Authority director Shay Aharonovich announced that "within several days" procedures for a new voluntary disclosure program would be issued. The program would allow Israelis that had concealed wealth from the state, and not paid tax accordingly, to report their assets and pay tax without fear of criminal proceedings.

The state was already counting the billions that would flow into its coffers from the Israeli wealth that would be uncovered around the world but since then months have gone by and the new procedures have yet to be published. What is delaying the program? It seems that the Tax Authority is still working on 'final formulations,' or so at least the Tax Authority and government legal advisor at the Ministry of Justice claim.

Sources familiar with the matter have told "Globes" that these 'formulations' refer to just one clause that the Tax Authority asked to put into the new procedures, allowing it to conduct civil proceedings against Israelis who fail in their voluntary disclosure.

In past programs the state did not create a protocol for conducting civil proceedings in cases where the voluntary disclosure does not succeed, and only promised that there would be no criminal proceedings. This prohibited the state from using information that was discovered as part of the voluntary disclosure against applicants.

This time the Tax Authority was seeking to insert a clause that determines that the state could open civil enforcement and collection proceedings against Israelis who had disclosed their wealth but had failed to complete their voluntary disclosure program. A draft of the new proceedings that included this clause was approved two months ago by the Attorney General.

Waiting for a new approval of the procedure

After the draft was approved, the Tax Authority regretted adding the clause, and decided to waive allowing civil proceedings to be conducted against Israelis whose voluntary disclosure procedure failed. The Tax Authority submitted a revised version to the Attorney General for approval but so far the newer version has not yet been approved.

According to a senior official at the Ministry of Justice, "99% of voluntary disclosure procedures are completed and successful anyway, so there was no need for this clause in practice and the Tax Authority understood this. The Authority regretted it, but it had to re-approve the procedure through the Attorney General. There is no dispute between the parties over the wording or the deletion of this clause, and in practice the procedure is only being delayed because of the workload in the Attorney General's office. The bottom line is that the procedure is technically stuck, only because it requires re-approval."

The Tax Authority spokesperson and Ministry of Justice spokesperson said in response, "The procedure was approved by the relative authorities including the Attorney General several months ago. A number of requests are now being examined for amendments to the approved procedure."

Without an anonymous track

The draft procedure that is now awaiting approval is identical to previous voluntary disclosure procedures, with the exception of one significant change. In the new procedure there will be no "anonymous track," in which applicant could previously keep their identity confidential when submitting the application and reveal themselves only after it was approved by the Tax Authority.

The Tax Authority and Ministry of Justice have agreed that this time an anonymous review of the voluntary disclosure will not be possible and the person requesting the disclosure will reveal their identity from the outset. The Tax Authority was initially concerned that the absence of an anonymous track would lead to no one revealing their hidden wealth due to the fear that if the procedure failed the state would act against them. However the Ministry of Justice insisted on this and clarified that after citizens had already been given two opportunities to reveal their wealth in the past, including through an anonymous track, no anonymous track was needed this time. "The Attorney General did not agree to the approval of an anonymous procedure, and really insisted on it," the source at the Ministry of Justice makes clear.

Another condition set by the Attorney General when drafting the procedure is that this will be the last voluntary disclosure to be published, and thus the final opportunity for Israelis who have hidden wealth to report their wealth and receive immunity from fines and protection from criminal proceedings.

The Tax Authority agreed to these two conditions set by the Attorney General and they were already approved in the previous draft, but as mentioned, the new draft (from which the section on civil proceedings was deleted) is now awaiting the Attorney General's signature.

NIS 31 billion uncovered with NIS 6 billion paid in tax

The new procedure is especially relevant for people who deal in cryptocurrencies, who up to now have had difficulty in regularizing their profits from the point of view of reporting and taxation.

In the previous voluntary disclosure programs launched in 2014 and in 2017, 9,963 application were submitted for voluntary disclosure, uncovering wealth held by Israelis around the world totaling NIS 31 billion, and NIS 6 billion was paid in tax. The biggest amount that was revealed in the program was in 2018 by an applicant who declared NIS 104 million on which NIS 17 million was paid in tax.

In previous voluntary disclosure programs there were three tracks: the regular disclosure track, the shortened track, and the anonymous track with the anonymous track always the most popular of these three tracks, with 87% of the tax eventually paid coming from this track.

Published by Globes, Israel business news - en.globes.co.il - on August 29, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Tax Authority chief Shay Aharonovich credit: Eyal Izhar illustration Tali Bogdanovich
Tax Authority chief Shay Aharonovich credit: Eyal Izhar illustration Tali Bogdanovich
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