Tax Alert No. 28 - 

Voluntary disclosure and trusts  19.12.2017

Probably the last chance – new voluntary disclosure procedure - 19.12.2017

As is well known, since 2005, alternately and in different variations, citizens had the option existed for submitting a request to the Israel Tax Authority, to arrange and disclose data on income and assets that had previously been concealed, rather than disclosed as required under the law. Disclosure as stated gave the taxpayer ‘kosher certification’ in the form of immunity from criminal proceedings.
The last voluntary disclosure procedure terminated at the end of 2016. After discussion with the state attorney, a new voluntary disclosure procedure was published – as a temporary order for two years, and in the case of submitting an anonymous request – for one year only.
It looks as though the temporary order for a maximum period of two years is designed to provide citizens a last chance to disclose their income and assets, before actual implementation of the results of agreements for exchange of information as part of the initiatives taken by the Europeans (CRS) and Americans (FATCA). According to these agreements, transfer of information from the United States is currently under way, with many other countries soon to follow suit, and provide information and data pertaining to the foreign income and assets of Israelis. We should note that the voluntary disclosure procedure applies to any kind of concealment of income and assets, not only those located outside of Israel.
Procedure terms – the same as in the past, mainly – a full, honest application to the Tax Authority, a precondition that the Authority has no previous information and that no check or investigation has been made by the Authority with regard to the applicant and his immediate surroundings.
How to apply? As in the past, apply to the Deputy Director for Investigations in the Israel Tax Authority, as part of which the relevant information and further details will be provided. After approval, the application is transferred to the civil tax assessment office to arrange the applicable tax sum.
Anonymous application – the great advantage of the voluntary disclosure procedure is the option of direct, anonymous application to the Tax Authority, while disclosure of the taxpayer’s identity is made only after an agreement is reached with the tax assessor’s office with regard to the tax that applies in the specific case. Anonymous applications are submitted to the Deputy Director for Investigations; however, at his stage it cannot be thoroughly examined. The application is transferred to the assessor’s office for discussion and negotiation without the taxpayer’s details; these are revealed only after agreement is reached. Bear in mind that as part of this temporary order, an anonymous application may only be submitted over one year, i.e., until December 31, 2018, and a draft agreement should be reached within 180 days (with the option of extending this period).
“Short track” – suitable for small requests in which the arranged capital does not exceed NIS 2 million, and taxable income does not exceed NIS 0.5 million.
Please note: immunity from criminal proceedings shall not apply to those whose source of income is illegal activity; the Tax Authority will not give protection to those whose application is not honest, or failed to pay the tax agreed upon.
Another ‘ambiguous’ qualification to criminal immunity is “less than full cooperation in connection with the request”. We note that this seemingly naive statement hides within it many potential risks for the applicant; hence he must conduct his affairs with caution. For example, a person who wishes to apply to the Tax Authority, but finds that his partner to that income does not agree to do so.
A person who has already in the past enjoyed the voluntary disclosure procedure shall not be entitled to do so it again. It is recommended that such cases not be ‘left in limbo’, and a taxpayer who has already performed the voluntary disclosure procedure and currently has what to disclose should put his affairs in order.
In recent years, our office has arranged the assets and income of a great many clients, including individuals, companies and trusts. This is performed by a professional team made up of former Tax Authority professionals, who in their previous capacity were in charge of handling such applications. We will be glad to be at the public’s disposal for any questions that may arise.

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