Recently, there have been indications that the Israel Tax Authority (the "ITA") is strengthening its ties with foreign tax authorities and banks in order to obtain information on Israelis who hold unreported bank accounts overseas. On September 7, 2014, Mr Moshe Asher (the Israeli tax commissioner) was quoted in one of Israel’s leading business newspapers as saying that "the ITA has already received lists with the names of thousands of Israelis who have bank accounts with considerable funds, particularly in Europe, that it intends to deal with very soon".
In order to provide a "last chance" for avoiding criminal proceedings for failing to disclose and pay taxes on foreign-assets, the ITA published on September 7, 2014 a new voluntary disclosure proceeding (the "VDP"), which will be in force until December 31, 2016. Taxpayers who take advantage of this proceeding will be granted immunity from criminal sanctions.
The most noteworthy feature of the VDP is the option to submit a VDP application anonymously, provided that such application is submitted September 6, 2015. The application is required to be submitted to the Senior VP of the ITA’s Investigations and Intelligence Department, who will be the only authority authorized to approve the VDP application (the "Competent Authority"). Note that the taxpayer may only enter into a settlement with the ITA with regard to his tax liability, if the Competent Authority confirms that the taxpayer is not under investigation. The VDP also provides for a "Green Light Process" in cases where the disclosed capital does not exceed NIS 2M and the taxable income derived from such capital does not exceed NIS 0.5M. Under this route, anonymous applications are not permitted.
Below is a summary of the VDP procedure:
(1) The VDP will apply to tax offenses related to income taxes, land appreciation taxes, value added taxes, customs duties and sales taxes.
(2) In order to participate in the VDP, the following conditions are required to be satisfied: - The voluntary disclosure is honest, complete and made in good faith.
- At the time of the VDP application, there are no investigations or inquiries with respect to the applicant (or his spouse or companies under his control).
- The ITA may refuse to approve a VDP application if it possesses direct or indirect information relating to the applicant (the applicant’s spouse or companies under the applicant’s control) from a governmental authority, the media, or court documents, minutes or other documents in civil or criminal judicial proceedings inside and outside of Israel. In exceptional cases, where there are special personal circumstances (such as a serious illness), the ITA may approve a VDP application even if the foregoing information exists.
- The VDP procedure will not apply if it does not result in a significant tax payment with respect to the tax years applicable to the VDP application (unless, for instance, the capital at matter was inheritance).
(3) Once the VDP application is approved by the Competent Authority, the Competent Authority will approach the relevant tax assessing officer in order to assess the individual’s taxable income. This process will be limited to a period of 90 days with one additional (and final) 90-day extension.
(4) The eligibility to offset losses that result from the VDP is limited to offsetting against regular income or capital gains generated by the assessed person, during the specific years included and reported within the VDP application. Such losses may not be carried forward. Additionally, declared losses may not be offset against undeclared income which was disclosed as part of the VDP.
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