Israeli Tax Alerts | Practical Interpretations | 2008-2020

230 In recent years, our office has been helping many clients - individuals, companies and trusts - to settle the affairs of their income and assets with a professional staff comprising former Tax Authority key-employees who in their previous positions also handled these very requests. We will be happy to provide assistance with any question that may arise. (March 2018) Voluntary Disclosure - taxation on capital as part of the Voluntary Disclosure Procedure by the Tax Authority is legitimate Over the last decade many Israeli residents have sought to settle previously unreported accounts of foreign-held assets and the income generated by them with the Tax Authority. This was typically performed by a formal petition to the Tax Authority via the Voluntary Disclosure Procedure. The procedure has changed over the years, has been extended periodically, and even allowed for submission of anonymous requests and negotiations until an arrangement was reached. Our firm has been involved in many of these petitions and arrangements and has witnessed the changes that have taken place over the years regarding a significant issue in these arrangements, namely - should taxation apply to the "capital", and if so, at what tax rate. The subject of taxation on capital has been addressed in a July 14, 2019 court ruling in the case of Avner Nukrai (Class Action Case 16-05-5356), where the petition to recognize the case as a class action suit was denied. As the basis of the claim, the claimant maintained that taxation on years where the statute of limitations has expired should not apply; that is, those tax years that preceded the ten years before reporting. As to the statute of limitations, the court ruling included the following:  Don't mix apples and oranges - that is, you cannot infer from a statute of limitations on the criminal offense of tax evasion on income generated over ten years ago, to a statute of limitations on a civil matter (tax collection).  Despite this, however, the Tax Authority is not authorized to collect taxes without a time limit; there are limitations of reasonability and conditions of adherence to the rules of administrative law. The judge states that the taxpayer has already received consideration in the form of immunity from criminal trial, thus the demand to also tax income generated more than ten years prior is a reasonable one.  Nor shall the statute of limitation apply to the case of someone who submitted a tax return but failed to include a significant portion of his income in it.