Following the huge leak of the Panama documents, the Israel Tax Authority is stepping up its actions against unreported companies founded by Israelis in tax shelters. Income tax investigators recently conducted searches for documents in the offices of three Israeli companies providing services to Israelis in founding offshore companies. Among other things, Tax Authority investigators raided the offices of Company Formation in Ramat Gan and Company Express, which provide consultation services for founding new businesses and registration services and advice for overseas companies. At the same time, the Tax Authority also raided law firms providing services in founding overseas companies and consultation for clients in the process. The Tax Authority is not interested in the law firm itself or the lawyers; it is interested in the companies and the business people for whom the firms and lawyers provide services. The Tax Authority investigators are demanding that the companies and lawyers disclose to the Tax Authority complete information about Israeli clients who used their services to found companies in tax shelters all over the world. The Tax Authority plans to check whether all the clients reported their involvement in the foreign company and their income to the Tax Authority.
No breach of confidentiality
One of the lawyers raided by the Tax Authority, however, did not accept this action, and petitioned the court against the seizure of documents in his office by the Tax Authority. The lawyer, the publication of whose name is forbidden, argued that lawyer-client privilege applied to the documents. Last Sunday, Judge Yeshayahu Schneller dismissed the lawyer's argument, ruling: "Under the circumstances of the case, in which the parties agreed that the identity of the lawyer's clients is the main information being sought, lawyer-client privilege cannot be established for particulars of the fact that legal services have been provided, including the client's identity, in breach of the provisions of the law." Judge Schneller also addressed the claim that disclosure of the information was liable to cause damage to the lawyer's clients, but made it clear that this concern could not justify making a law firm into a "shelter" for a client from the authorities.
Tax Authority raid finds 1,600 companies founded by Israelis in tax shelters
The Tax Authority raid of those providing services for opening foreign companies is already providing it with a great deal of work. An initial perusal of the documents obtained in recent raids by the Tax Authority found documentation of 1,600 companies founded by clients of the three companies, including in the Virgin Islands, the Caribbean Islands, the Marshall Islands, Panama, Cyprus, Senegal, and other tax shelters. Founding a company in a tax shelter is not a crime, and quite a few business people around the world, including in Israel, choose to incorporate their companies in "offshore countries" for reasons of taxation, including in Panama, Bermuda, Cyprus, Luxembourg, the Cayman Islands, the Virgin Islands, and Hong Kong. In Israel, however, there is a duty to report a holding in an overseas company. By law, an Israeli citizen who is the controlling shareholder in a foreign company must report it to the Tax Authority in a special report in the framework of a capital declaration, and not all the Israelis operating overseas fulfill this duty.
Published by Globes [online], Israel business news - www.globes-online.com - on June 2, 2016
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