As part of the global struggle against money laundering and financing terrorist activity, several international provisions were set to establish a system for international collaboration and information sharing (FATF), which aims to prevent undeclared capital and property and their transfer between countries for tax evasion purposes.
Development of these systems and work procedures allowed to aggregate information on foreign accounts and properties worldwide that belong to Israelis, who did not report it in their annual financial statement. Information is obtained through work relationships and procedures specified between the countries and through reports provided by entities obligated to report to the Israeli authorities regarding suspicious movements in accordance with the Prohibition on Money Laundering Law.
As the time passes, there is more evidence to initiate an investigation against the Israelis, regarding whom an incriminating information was gathered. In such cases, owners of the unreported property take a risk of going through serious investigations, administrative and criminal fines, imprisonment and confiscation of property.
In recent years, the Tax Authority has adopted the international trend to allow the taxpayers, who have not duly declared their property, to correct their mistake by providing a voluntary disclosure and paying the required tax, including indexation and civil fines. In exchange, the Tax Authority undertakes not to initiate criminal proceedings against tax evaders.
Voluntary disclosure
The voluntary disclosure procedure is aimed to allow tax evaders to submit reports and information and avoid criminal proceedings. The Tax Authority has extended the period of this operation and it is available until December 31, 2016.
Voluntary disclosure procedure offers a number of options:
- Application for a voluntary disclosure to be carried out anonymously, allowing to submit a report without exposing the identity of the applicants, receive an assessment and pay. The applicant can decide whether to complete the voluntary disclosure procedure after revealing the amount to be paid.
- Application for a short voluntary disclosure procedure shall be submitted if the assets do not excess 2 million NIS and the taxable profit is no more than half a million NIS. In case the application does not meet the necessary requirements, it will be redirected to the standard procedure, without criminal proceedings against the applicant. It is also important to know that the short procedure does not allow to carry out the procedure anonymously.
- Application for a standard voluntary disclosure procedure.
Criteria for standard voluntary disclosure procedure
- The applicant voluntarily and honestly reveals all offenses. Application submitted following a preliminary investigation of the authorities or government agencies are rejected.
- There is no voluntary disclosure related information available to another governmental authority.
- The authority has not yet started a formal investigation and examination of the files somehow related to voluntary disclosure.
- Information regarding a voluntary disclosure has not been published in media. If such information was published, it is considered as available to the authority.
- Information is not part of a criminal proceeding in Israel or abroad.
- Application shall be submitted once in the taxpayer’s life, except for special circumstances, such as serious illness or old age.
Offenses that should be reported via a voluntary disclosure procedure
The income should be legal only. It means that a voluntary disclosure procedure does not apply to criminal activities, such as money laundering, specified in the Prohibition on Money Laundering Law.
The voluntary disclosure procedure applies to such operations, as concealment of income and assets, business tax evasion, fraudulent bookkeeping. Protection will not be provided in case of technical offenses, such as failure to submit reports.
Risks involved in voluntary disclosure
Globalization has greatly contributed to information availability and sharing between countries, especially when it comes to information related to the fight against black economy and money laundering. Therefore, debtors and taxpayers, who committed a tax offense, are exposed to long imprisonment and heavy fines, including confiscation of property.
The voluntary disclosure procedure serves as an opportunity to utilize laundered capital at a very affordable price, while avoiding severe criminal and financial consequences. On the other hand, person interested to submit a voluntary disclosure application, is exposed to great risk.
It is recommended not to take a risk and not to submit an application without using the services of an experienced lawyer specializing in taxation, since an incorrectly submitted application may affect the Tax Authority’s decision and cause a considerable and irreversible damage to the applicant.