Have You been Asked by the Tax Authority to Declare Your Sources of Income? Voluntary Disclosure is Your Best Option

Posted by on Jul 7, 2014 in Blog, Voluntary Disclosure | No Comments

Recently we are witnessing many taxpayers being required by the Tax Authority to fill out a statement regarding sources of income. This is putting a large part of the public with foreign bank accounts that have never been reported in Israel.

Naturally, such bank accounts might yield various taxable incomes from interest, capital gains arising from transactions in securities, etc. In any event, they will appear in a statement reported sources of income. The trouble is that such a statement at this late stage may expose many taxpayers to criminal charges for concealing income from past years.

Solution: Voluntary Disclosure

As part of its fight against tax evasion, the Tax Authority’s listed various tax offenses in Israel in 2005, and published the “Voluntary Disclosure” procedure, which allows Israeli residents (resulting from the application of personal application and territorial tax prevailing in Israel from January 1st, 2003) to voluntarily report any tax offenses committed and in return gave them immunity from criminal proceedings.

In 2011, the Authority issued a temporary order regarding the Voluntary Disclosure procedure, under which taxpayers were granted a number of concessions in the collection. This temporary order was completed at the end of September 2012.

Offenses accounted for within the framework of the procedure are: omitted income or assets, fraudulent bookkeeping, tax evasion by businesses and trades in Israel and abroad, and crimes related to import and export.

It should be emphasized that the scope of the immunity granted (as a result of taking advantage procedure) will be only to information submitted to the Tax Authority during the process of Voluntary Disclosure.

The most common cases treated during the process of Israeli residents’ income from assets located abroad, are taxable income and tax reporting in Israel with a personal link existing in the tax system in Israel. Meanwhile, the foregoing does not detract from the scope of practice of “black money” generated within the State.

The Complexity of the Procedure

Despite the benefits of the Voluntary Disclosure procedure, it is not free of defects. Firstly, the preliminary conditions for applying, are not at all simple and require careful review. Failure to meet the conditions therein will result in rejection of the application, and will allow the Authority to open criminal and civil proceedings against the taxpayer. Secondly, generally the person applying for voluntarily disclosure is no “criminal” and therefore does not have all the information required to deliver an accurate true statement. Thirdly, reference may result in the opening of previous assessments and drag out proceedings, as well as resulting in increased tax payments.

Important to Know

Given the above, before filing for Voluntary Disclosure, it is recommended that you consult an attorney specializing in this field, since this is a complicated process with far-reaching implications. Examination by an expert will significantly reduce risk during the qualifying procedure in the case of a taxpayer, by using a comprehensive and professional inspection of all the data on the taxpayer.

In addition, as far as income generated abroad, it is important to consult with a lawyer specializing in international taxation and tax treaties signed by the State of Israel, for the purpose of classification of the taxpayer’s income paid in foreign countries, and his entitlement to tax credits.

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