The Israel Tax Authority announced Tuesday an extension of the Israeli tax
temporary amnesty for foreign income by three months from June 30 (Shabbat) to
September 27 (the day after Yom Kippur). We reviewed the temporary amnesty on
May 31 (“Israeli tax amnesty – time is running out”). The amnesty is formally
known as a “voluntary disclosure procedure” because it enables taxpayers to come
Why the reprieve?
According to ITA director Doron
Arbeli, the decision to grant an extension to the amnesty was taken after many
requests from taxpayers and their representatives, who had not finished
preparing their amnesty applications, and as an integral part of the ITA’s
strategy of increasing confidence, transparency and listening to the
But after the above date, he said, no relief will be granted for
those who fail to exploit this window of opportunity, and the ITA will apply all
its civil and criminal powers.
Anonymous applications accepted
announcement includes some interesting “clarifications.”
The ITA will now
allow anonymous applications to be made in the above three-month period to
ascertain the resulting tax liability before formally applying for the amnesty.
The applicant should apply to the Tax Director’s Bureau and specify all the
required information including, among other things: the amount capital
accumulated abroad; the types of income accumulated over the years; the source
of the capital abroad; list of documents held by the applicant to verify his
above-mentioned declarations; the local tax office that handles the taxpayer’s
tax file, and if there is none, the place where the applicant permanently
All this can be done without identifying the applicant at this
stage. The anonymous application will be referred to the relevant tax office for
processing in conjunction with the applicant’s representative to determine the
amount of tax due.
If the applicant decides to enter into the amnesty, he
must then lodge an application under the ad hoc amnesty arrangement, presumably
on a named basis.
What’s on offer?
The deal on offer under the temporary
amnesty is basically: pay the tax; no interest or penalties on the overdue tax
(which can otherwise be substantial); no criminal procedures; indexation for
inflation may be party or wholly abated ; applicants must identify themselves,
but their names should not be published.
Criteria for applying
to the ITA, the following is a non-exhaustive list of examples of cases where
the temporary VDP may apply: unreported income from foreign assets received by
way of inheritance or gift from a foreign resident; unreported income from
foreign assets acquired with money derived from income generated in Israel or
abroad on which tax was paid or no tax was due in Israel; unreported income from
foreign assets on which the liability to tax arose since the 2003 tax year,
following the Israeli tax reform of 2003 (which made Israeli residents taxable
on worldwide income instead of Israeli-source income).
procedure does not apply to assets and income derived from: a “crime” under the
Penal Law (defined in Section 24 as an offense carrying a punishment of more
than three years); applications made following or in parallel to an
investigation or examination by a state authority.
meeting the above criteria will not be dealt with by the panel. Nevertheless,
according to the ITA circular, “no use will be made in the criminal and civil
arena with the information included in the application.”
No criminal proceedings may be initiated 10 years after the tax
year in which a tax offense was committed, according to Section 225 of the
Income Tax Ordinance. But the amnesty is a civil, not criminal, procedure, so
the ITA might try to clean up all years concerned. On the other hand, Israeli
residents were usually exempt from Israeli tax on most (not all) types of
foreign-source income before 2003. But pre-2003 capital gains of such persons
were always taxable in Israel and remain exposed.
The ability to
quantify the tax hit anonymously before formally applying for the amnesty is
likely to reassure some hesitant or mistrusting taxpayers. If they don’t like
the deal, they can walk away and stay anonymous. Their professional
representatives should to be asked to reach an acceptable written tax-assessment
agreement (“ruling”) before disclosing any identifying details.
experience, disclosure of the taxpayer names can be left to the end and might be
made a condition for activating such an agreement.
There have been
instances in which the ITA has sought to deny utilization of foreign losses due
to late reporting, based on a disputed interpretation of certain provisions in
the tax law. Hopefully, the ability to walk away will improve the taxpayer’s
The relief from interest and penalties on overdue tax
can be a substantial benefit in some cases if income has not yet been reported
for a few years.
Don’t forget to claim any applicable foreign tax
In practice, information provided by a number of foreign
institutions is surprisingly incomplete, necessitating
For example, the cost and purchase date of securities
sold is not always available. Some financial institutions even expect investors
to make do with year-end totals. It seems that listing information available
might be a prelude to negotiating Israeli taxes due based on such incomplete
information. This should improve the ITA’s chances of a successful
The taxable period has been left vague. Is it all years from
January 1, 2003, when Israel adopted worldwide taxation of Israeli residents
(except new immigrants in their five- to 10-year Israeli tax holiday for
overseas income and gains)?
As always, consult experienced tax advisers in each
country at an early stage in specific cases.