A reform of the Israeli taxation system was begun in the year 2003 to change the system from taxing the Israeli resident on a territorial basis, that is to say taxing income earned or accrued only in Israel, to the system of taxing the Israeli resident on a personal basis- levying taxes on worldwide revenues of an Israeli resident, regardless of where that income was sourced. The immediate result of the changes in the taxation system, as stated, was that many tax-payers who earned income from assets outside of Israel instantly entered the Israeli taxation network.
In this context it is worth pointing out that in the last few years we have been witnessing continuing intensified collaboration and exchange of information between the Israeli tax authorities and their worldwide colleagues. Collaboration and exchange of information have also expanded with foreign banks, including even the most conservative of them.
The combination of tax reform together with intensified international collaboration, as well as the greater enforcement recently being intensively implemented by the tax authority, have naturally led to increased concern among those who own foreign assets yet do not declare them and/or income they earned from them, knowingly or unknowingly.
This phenomenon presents these tax-payers with a dilemma that is not so simple- should they or should they not initiate a direct application that will expose their undeclared assets and incomes.
On the one hand, with the passing of time the situation is only snowballing, as the possible ramifications resulting from the exposure of those foreign assets and incomes by the tax authority itself become more and more grave on a civilian or even on a criminal level. On the other hand, there is naturally a fear of reporting and initiating exposure of income which was seemingly “hidden” from the authorities for years.
Understanding the afore-mentioned dilemma, the tax authority is allowing the tax-payer to implement a process of voluntary disclosure regarding undeclared income and is even opening an occasional window of opportunity that provides some significant perks and benefits to the tax-payer for example: immunity from criminal prosecution for tax evasion, the possibility of anonymous proceedings, cancellation of fines and interest, and the like.
Recently the tax authority publicized a new voluntary disclosure procedure valid for one year that will allow tax-payers to report revenues from abroad without fear of criminal conviction. The new procedure allows for two tracks- an anonymous track and a shortened track.
In actual fact, the process of voluntary disclosure is complicated and takes place while facing a number of bodies at the tax authority simultaneously, where the method, the manner, and the timing of the presentation of the facts are all critical to the final tax outcome and to the minimization of risk to the tax-payer.
Managing the process of voluntary disclosure requires a deep understanding of the complex aspects and ramifications of the disclosure, and at the same time an appraisal of the dangers and optimum chances of success, as well as dynamic, weighted, and professional negotiations with the goal of reaching the most optimal tax outcome with the least possible superfluous damage and danger to the tax-payer.
Our office has extensive, successful experience in accompanying the submission of requests to the tax authority in the field of voluntary disclosure and effective settlements of civilian tax payments resulting from that procedure. Confidentiality guaranteed.