The New Israeli Voluntary Disclosure Procedure

Unreported income|IsraelTax Authority|Criminal

7 September 2014

The Israeli Tax Authority published recently the official translation from Hebrew to English of the Voluntary Disclosure Procedure. The following includes the most important parts of the Voluntary Disclosure Procedure. 

See also:

Israeli New Voluntary Disclosure Program

Voluntary Disclosure Procedure: Temporary Order

For the old Voluntary Disclosure Program, see: Israel's voluntary disclosure of offshore income 

A. General

The Israeli Tax Authority wishes to motivate taxpayers, VAT dealers, individuals, and officers in corporations, which have committed offences under Israeli tax law, to amend their tax reports and submit the correct data. In order to reach this  goal, the Israeli Tax Authority, in coordination with the State Attorney, is willing to undertake not to open criminal proceedings against anyone who shall perform a voluntarily disclosure according to the conditions detailed below. The Voluntary Disclosure Procedure will apply to tax offences referred to in Appendix A to this Procedure.
 

Conditions for the Voluntary Disclosure Procedure

1. The voluntary disclosure will be honest, complete, and will be made in good faith. 

2. At the time of the submission of the application, the Israeli Tax Authority has not examined or investigated the applicant's tax matters. For this purpose, "examined or investigated" shall include such activities with respect to the spouse of the applicant and companies controlled by either the applicant or by his spouse. 

3. At the time of the submission of the application, the Israeli Tax Authority does not have any information which is related to the voluntary disclosure, including with regard to the applicant's spouse, companies controlled by the applicant or his spouse, and a partner's files. 

4. At the time of the submission of the application, the Israeli police was not examining or investigating the applicant’s matters or of his spouse, or companies controlled by the applicant or by his spouse, which are related to the voluntary disclosure, including their business activity, or any other income producing activity. 

5. The Israeli Tax Authority may reject the voluntary disclosure application if any information noted above in paragraphs 2-4, which is related to the voluntary disclosure, directly or indirectly, including with respect to the applicant’s spouse, companies controlled by the applicant or his spouse, and partner's files: (i) is held by another administrative authority; (ii) has been published in the public media; or (iii) was included in judicial documents, court protocols, or any other document which was part of civil or criminal proceedings, whether held in Israel or abroad. 

6. (a) In exceptional cases, due to extraordinary personal circumstances (such as a serious illness), the Israeli Tax Authority may approve a voluntary disclosure application even if it has information as described in section 3 above, or an examination or investigation, as described in sections 2 and 4 above has already begun. 

(b) In exceptional cases and due to unique reasons which will be noted, when the information, investigation or inspection as described in sections 2-4 above, are related to one company out of many, which are controlled by the applicant and when such information, examination or investigation is not related, directly or indirectly, to the application, then the Israeli Tax Authority may approve a voluntary disclosure application even if it has information as mentioned in section 3 above, or an examination or investigation as described in sections 2 and 4 above has already begun.
 

B. mode of action

7. Voluntary disclosure applications will be submitted exclusively to the Senior Deputy Director General (Investigations and Intelligence) of the Israeli Tax Authority, and he alone will be authorized to approve such applications (hereinafter: “The Authorized Official”). If a voluntary disclosure application has been submitted to another Israeli Tax Authority official, it shall be immediately transferred to the Authorized Official. 

8. The disclosure shall be honest and will include any information relevant to the application, including inter alia : (i) the relevant tax years; (ii) the source of the income; (iii) the origin of the capital; (iv) the amounts of income that were undeclared; and (v) details and estimations of the tax liability. All relevant documents will be submitted together with the application. 

9. The applicant will sign and submit the form in Appendix B. 

10. The application will be signed by the applicant. If the applicant is represented then the power of attorney will also be submitted. 

11. If the Authorized Official decides that the application should not be approved then he shall notify the applicant. 

12. If the Authorized Official decides that the application meets the procedure's criteria, then he shall notify the applicant that his application is approved subject to the payment of the applicable tax as determined by the civil official. Following the application's approval, the Authorized Official will transfer the application to the relevant civil official (e.g., the Tax Assessing Officer, the VAT Officer, the Real Estate Officer, the Customs Collector, etc.) for the determination of the applicable tax.

13. The applicant shall pay the applicable tax at such time as will be determined by the civil official. For the purpose of this section "payment of applicable tax" shall be defined as: payment of nominal amount, linkage, interest and civil fines, as determined by the civil official and at such time as will be decided by him. 

14. The applicant shall fully and honestly cooperate with any relevant Israeli Tax Authority official with regard to any issue related to the voluntary disclosure application. 

15. If the applicable tax, as determined by the civil official, was paid, at such time as was decided by him, then no criminal proceedings will be taken against the applicant with respect to the voluntary disclosure application that was approved as mentioned in section 12 above.
 

C. Limitations regarding the immunity from criminal proceedings

16. A taxpayer will be entitled to participate in a voluntary disclosure procedure once in a lifetime. A second application shall only be approved in special circumstances, such as serious illness, old age, etc. 

17. The Procedure shall not apply to income derived from criminal activity. 

18. The Procedure shall not apply if it will not yield a significant tax payment with respect to the relevant tax years. However, the Procedure will apply even if the applicable tax is insignificant, in the case of inherited money where the applicant's sole offence with regard to such funds, has been the failure to report since 2003, or similar cases.

19. The immunity from criminal proceedings will apply only to the information which was disclosed in the voluntary disclosure procedure. 

20. The immunity according to this Procedure will apply only to the tax offences mentioned in Appendix A to this Procedure. 

21. The procedure shall not apply to offences which are classified as administrative offences according to the Administrative Offences Law 5786-1985. 

22. In case sections 1, 8 or 14 of the Procedure have been breached, no immunity from criminal proceedings shall be granted to the applicant and the Israeli Tax Authority will be allowed to use the information provided in the application as evidence in civil and criminal proceedings. 

23. In case the application was not approved by the Authorized Official, the Israeli Tax Authority shall not use the information disclosed in the application in criminal and civil proceedings. 

24. This Procedure replaces any previous procedure or circular with respect to the voluntary disclosure procedure. 

25. This voluntary disclosure procedure shall be in force from the day of its publication and until December 31, 2016.
 

See also:

Israeli Tax Authority Collects Information 

Israeli Tax Authority Hunts Undeclared Income

Israel will Receive Information from Tax Havens

Tax Havens are Attractive for Israelis