Voluntary Disclosure Procedure – Israel Tax Authority

September 7, 2014

A. General

The Israeli Tax Authority (hereinafter:"ITA") wishes to motivate taxpayers, VAT dealers, individuals, and officers in corporations, which have committed offences under Israeli tax law, to amend their tax reports and submit the correct data. In order to reach this goal, the ITA, in coordination with the State Attorney, is willing to undertake not to open criminal proceedings against anyone who shall perform a voluntarily disclosure according to the conditions detailed below (hereinafter: “the Procedure").

The Procedure will apply to tax offences referred to:

  1. The Income Tax Ordinance (new version), 5721-1961.

  2. The Real Estate Taxation (Appreciation and Acquisition) Law 5723-1963.

  3. The Value Added Tax Law, 5736-1975.

  4. The Purchase Tax (Goods and Services) Law, 5712-1952

  5. The Customs Ordinance (New Version).

  6. Customs and Excise Duties (variation of Tariff) Law, 5709-1949.

  7. Any tax order in any law or according to a law, with respect to one or more of the Laws mentioned in sections 1-6 above.

B. Conditions for the voluntary disclosure procedure

  1. The voluntary disclosure will be honest, complete, and will be made in good faith.

  2. At the time of the submission of the application, the ITA has not examined or investigated the applicant's tax matters. For this purpose, "examined or investigated" shall include such activities with respect to the spouse of the applicant and companies controlled by either the applicant or by his spouse.

  3. At the time of the submission of the application, the ITA does not have any information which is related to the voluntary disclosure, including with regard to the applicant's spouse, companies controlled by the applicant or his spouse, and a partner's files.

  4. At the time of the submission of the application, the Israeli police was not examining or investigating the applicant’s matters or of his spouse, or companies controlled by the applicant or by his spouse, which are related to the voluntary disclosure, including their business activity, or any other income producing activity.

  5. The ITA may reject the voluntary disclosure application if any information noted above in paragraphs 2-4, which is related to the voluntary disclosure, directly or indirectly, including with respect to the applicant’s spouse, companies controlled by the applicant or his spouse, and partner's files: (i) is held by another administrative authority; (ii) has been published in the public media; or (iii) was included in judicial documents, court protocols, or any other document which was part of civil or criminal proceedings, whether held in Israel or abroad.

  6. (a) In exceptional cases, due to extraordinary personal circumstances (such as a serious illness), the ITA may approve a voluntary disclosure application even if it has information as described in section 3 above, or an examination or investigation, as described in sections 2 and 4 above has already begun.
    (b) In exceptional cases and due to unique reasons which will be noted, when the information, investigation or inspection as described in sections 2-4 above, are related to one company out of many, which are controlled by the applicant and when such information, examination or investigation is not related, directly or indirectly, to the application, then the ITA may approve a voluntary disclosure application even if it has information as mentioned in section 3 above, or an examination or investigation as described in sections 2 and 4 above has already begun.

C. Limitations regarding the immunity from criminal proceedings

  1. A taxpayer will be entitled to participate in a voluntary disclosure procedure once in a lifetime. A second application shall only be approved in special circumstances, such as serious illness, old age, etc.
  2. The Procedure shall not apply to income derived from criminal activity.
  3. The Procedure shall not apply if it will not yield a significant tax payment with respect to the relevant tax years. However, the Procedure will apply even if the applicable tax is insignificant, in the case of inherited money where the applicant's sole offence with regard to such funds, has been the failure to report since 2003, or similar cases.
  4. The immunity from criminal proceedings will apply only to the information which was disclosed in the voluntary disclosure procedure.
  5. The immunity according to this Procedure will apply only to the tax offences mentioned above.
  6. The procedure shall not apply to offences which are classified as administrative offences according to the Administrative Offences Law 5786-1985.
  7. In case sections 1, 8 or 14 of the Procedure have been breached, no immunity from criminal proceedings shall be granted to the applicant and the ITA will be allowed to use the information provided in the application as evidence in civil and criminal proceedings.
  8. In case the application was not approved by the Authorized Official, the ITA shall not use the information disclosed in the application in criminal and civil proceedings.
  9. This Procedure replaces any previous procedure or circular with respect to the voluntary disclosure procedure.
  10. This Procedure shall be in force from the day of its publication and until December 31, 2016

D. Anonymous application – Temporary Order with respect to Voluntary Disclosure Applications

Following requests to the ITA and based on the ITA's experience in the implementation of the 2011 temporary order with respect to disclosure of Israeli residents' capital and income abroad, it has been decided to enable the submission of anonymous applications based on the following temporary order, for an additional trial period of one year from the day of the publication of this order.

E. Our Service

In light of all the above said, we strongly recommend to take advantage of this rare opportunity and to examine the possibility of commencing with such a process, where relevant. This is a golden opportunity to clarify the real costs of exposing the accounts and assets and settling the matter, whilst – at the first stage – up until receiving the confirmation in principle from the Authority, the identity of the enquirer remains privileged.

We invite all of you, wishing to examine their status and to clarify whether their assets or accounts, or those of their relatives, comply with the criteria for an anonymous query to the Tax Authority, to contact our firm and we will be happy to examine the issue for you, based on our extensive experience and thorough understanding of the matter.

In conclusion we will emphasise that, as there is a target date for the filing of the anonymous applications (and in all probability no further extension will be granted),  you must act in the matter as soon as possible in order to comply with the time table set out by the Israel Tax Authority.

For further information please contact Ariel Zitnitski Adv. & CPA in our firm (tel: 03-6251111 or email: az@zw-co.com).

Yours Respectfully,

Zitnitski Weinstein & Co.