Reporting Procedure as to Concealed Income and Property (full article)

By: Attorney Alon Samuel

In early September 2014 the Israel Tax Authority published a new procedure, designated to allow citizens and residents of Israel, who did not report certain types of income in recent years, to now report them making a late tax payment but avoiding any penalty. The procedure was designed, among others, to provide an avenue for citizens who have had income from bank accounts abroad but did not report it at that locale, or who have had income from apartments rental in Israel or abroad, income from the sale of assets inherited abroad and the like, all of which went unreported.

According to the procedure (it is entitled, "Voluntary Disclosure"), two reporting avenues are available:

The first one, relates to accountholders with unreported income from foreign bank accounts, holding up to NIS2,000,000, provided that the unreported tax does not exceed NIS500,000. Such account holders may submit either an initial or amended return to the Tax Assessor and pay the accumulated tax due without any penalty, moreover, they will not be subjected will criminal prosecution.

Holders of unreported foreign bank accounts with over NIS2,000,000 may, using the services of either an attorney or a CPA, commence negotiations with the tax authorities, initially without disclosing their identity. In the event that a tax payment is agreed upon, the taxpayer identity will be revealed and an agreement will be had, granting the latter immunity from criminal prosecution.

It should be pointed out that in the process of exposure (of the taxpayer's identity), if it turns out that, before approaching the tax authorities, the taxpayer was already the subject of an on-going investigation, no agreement may be entered with the latter and such taxpayer will not be eligible for the benefits offered by the new procedure.

In recent years erosion in global banking secrecy provided accountholders outside their home countries has grown, while increasing cooperation among authorities in different countries is evident. OECD countries, Israel included, have signed a number of conventions that allow the exchange of information and mandate the disclosure of data about assets and bank accounts of foreign nationals, whether such disclosure is done in a routine exchange or in response to a particular request made through the courts.

Consequently, countries such as Switzerland, Singapore and Uruguay, who were known as tax shelters with a high level of bank secrecy, have greatly increased, through legislative means and attendant flexibility (concerning disclosure) thus allowing a much greater degree of information disclosure to tax authorities in other countries.

Since this is a global trend of growing collaboration among countries, we consider the new procedure of the Israel Tax Authority an opportunity to settle the matter of unreported income and assets, while ensuring non-criminal prosecution and no payment of any fines or penalties.

In recent years our office has dealt with quite a few cases where voluntary disclosure proceedings were employed. During the past two years these were not anonymous and did not allow a simple settlement of relatively minor incidents of failure to report income. We will be happy to counsel those who agonize about such matters, and also advise clients who want to "come clean," either in order to serve their own interest or that of their children and grandchildren.

The matter of reporting undeclared property or income has assumed greater urgency due to the fact that a bill was brought before the Knesset, one that would define failure to report income as a money laundering offense, which, in turn, allows rather severe punishment, including, pre-trial forfeiture of property and funds and the levying of heavy fines.

Accordingly, handling the settlement of undeclared property or unreported income now, with a consequent inclusion thereof in the individual's known assets, could serve to save one serious headaches in the future -- as in the proverbial ounce of prevention approach .

We would like to stress that the foregoing information is provided as service in general and is in no way intended as a substitute for detailed legal advice necessary prior to undertaking any activity whether in the area of voluntary disclosure of income or property to the authorities.