Voluntary disclosure updates for Israeli taxpayers

On December 12, 2017, the Israeli Tax Authority published a temporary order concerning requests for voluntary disclosure and is effective until December 31, 2019. These exclude anonymous track requests, which will remain in effect until December 31, 2018.

General background

From 2003 onward, Israeli residents have been obligated to report all income and assets in Israel and abroad under the personal tax obligation. These include bank accounts, financial inheritance, real estate, etc. The obligation to report applies to all Israeli residents, including individuals who have never filed an annual report in Israel. Failure to adhere to this obligation is a criminal tax offense punishable by incarceration, tax payment, interest fines, and/or forfeiture of assets.

Benefits of the Voluntary Disclosure Procedure

The Tax Authority wants taxpayers, licensed dealers, individuals and attorneys who have failed to comply with the requirement to report worldwide income to amend their tax reports and settle the resulting tax obligations. The Tax Authority (in collaboration with the State Attorney) is therefore willing to forego legal proceedings in exchange for voluntarily compliance.

Worldwide Information Exchange

Bilateral information exchange has been on the rise in recent years, and will continue to expand in the future. Israel has signed information sharing agreements with numerous countries, and adheres to the OECD’s international common reporting standard, designed to collect information on financial accounts, to be exchanged between tax authorities worldwide for the purpose of tax enforcement. These financial data regarding individuals are collected by financial institutions and automatically submitted to the account owner’s country of residence on an annual basis.

In other words, foreign banks that are managing accounts for Israeli residents are sharing information to the State of Israel regarding these accounts.  This sharing of data will continue in the future. Needless to say, the Israel Tax Authority will verify the bank data against the tax filings on data and take the appropriate action where discrepancies are found. At this point, the authorities will not offer any leniency.

The voluntary disclosure procedure is the final opportunity to escape criminal charges.

Voluntary Disclosure Procedure Tracks

Criteria for voluntary disclosure include options for either open or anonymous submissions.  Also included is an abbreviated short track for unreported capital not exceeding NIS 2 million, and the resulting taxable income does not exceed NIS 500,000.

Individuals may disclose their assets and pay tax on unreported income contingent on compliance with the limitations published by the Tax Authority. The taxpayer must establish that his non-compliance was non-willful and in good faith and must not be under a current examination or investigation by the Tax Authority. Other conditions are specified in the procedure.

For more information about your voluntary disclosure case please contact us (discretion assured):

Yaniv Angel: yaniv@auren.co.il