The Israel Tax Authority is working intensively to expand collection on various levels and consequently this increases the "risk" of exposing taxpayers that evade tax. Nevertheless, the "voluntary disclosure" procedure, which began in September 2014, allows taxpayers to settle their past debts and remove their fears concerning criminal sanctions and fines. The instructions of the procedure also apply to the Law for Real Estate Tax (Betterment and Purchase) and may also apply to other laws within the field of real estate transactions taxation.
The Israel Tax Authority is working intensively against tax evaders while significantly expanding its efforts on various levels. We were recently informed by a Tax Authority announcement and articles in the major newspapers that the Tax Authority is working to uncover overseas bank accounts and assets belonging to Israelis, by intensifying its campaign against unreported capital, as part of global trends on this subject. These efforts are in addition to a range of other measures taken recently by the Tax Authority, including the "Informers Hot line," more deeper probing tax collection in the residential real estate rental market, and sending tens of thousands of letters to Israelis demanding that they present approvals and proof, regarding assets that they hold and activities that they are implementing.
In September 2014, the Tax Authority published procedures and instructions on the topic of "voluntary disclosure,' which is another important step in its efforts to expand the number of taxpayers and increase tax collection. The "voluntary disclosure" process for tax offenses allows taxpayers that did not report their income on time, to pay the required tax (with interest added and linked to the cost-of-living index), through a late report that is carried out by their own decision and is not subject to financial sanctions, while granting immunity against criminal proceedings.
As part of the latest instructions published by the Tax Authority, two important new innovations have been added: the option of filing an anonymous request through a lawyer where the Tax Authority is required to respond to it within 90 days, and filing on a short-track in instances where the unreported capital is not more than NIS 2 million, and the revenue owed deriving from the amount is not more than NIS 500,000.
According to the instructions of the new procedure, taxpayers can disclose their assets and declare their unreported income, and pay the tax deriving from it, providing it meets the conditions set out in the procedure. Among the conditions, there is a requirement that the request is carried out honestly and in good faith and that at the time of the request, the Tax Authority is not conducting and examination or investigation of the applicant's affairs.
The main innovation in the recently published voluntary disclosure procedure is the possibility of an anonymous disclosure through a lawyer. The anonymous disclosure removes two main concerns, which confront the taxpayer. The first - is the amount of tax that the taxpayer will be required to pay, and the second - is the possibility of repenting without the taxpayer's identity being revealed to the Tax Authority (the identity of the taxpayer will remain confidential only to the lawyer handling the matter). These advantages strengthen the certainty and the security of the taxpayer who is interested in settling exposure to existing taxes as a final consequence of the "voluntary disclosure" procedure.
Tax planning for real estate deals in Israel and abroad, might in many cases substantially reduce the amount that is owed in taxes. For example, many taxpayers are not aware of the possibility of recognizing expenses or offsetting losses deriving from the various real estate assets that they own. Many taxpayers are also not aware about the various tax alternatives existing in tax laws in the field of real estate. This is an area where choosing the best option may save the taxpayer significant amounts of tax. With the coming into effect of the new "voluntary disclosure" procedure, it is possible through relatively low tax payments following tax planning, which will allow taxpayers "to turn over a new leaf" with the Tax Authority.
The desire of the State, and consequently the Tax Authority, to fill up the public coffers, places before us an opportunity, for just a short period of time, to settle exposure to existing taxes which can with considerable ease be realized with all the implications involved. Contractors and developers in the real estate sector who toil hard throughout the year, work around the clock and therefore do not pay full attention and thought to the possible tax repercussions regarding the activities that they carry out. This is the time and the opportunity to conduct an in-depth examination of exposure to existing taxes.
The authors are Adv. Liora Bein-Alon, Founding Partner at Prof. Bein & Co. Law Office and Adv. Gilad Abitbol (Accounting) Associate at the firm.