Your Taxes: Tax office will send in the heavies

It may sound like a gangster movie, but it could come our way soon if we don’t pay our taxes. Last year, the government collected NIS 39 billion less than it spent.

In last week’s column we modestly pointed out a way of effortlessly collecting a good piece of that by tightening up on transfer pricing within international trading and service groups.

But not everyone reads The Jerusalem Post. Instead, attention in government circles is now focusing on a bill for tightening tax enforcement, known as the Proposed law for Extending Tax Collection and Tightening Enforcement (Legislative Changes and Ad Hoc Measures) 2012, published on November 5, 2012.

Below we briefly review a few of the proposals in this bill. It remains to be seen what will be legislated.

Court bailiffs

A key proposal is to allow income-tax, real-estate-tax and value-added-tax officials to pass over the task of collecting taxes to a “coordinator” who is actually the regional bailiff currently charged with collecting fines and other amounts imposed by the courts. The regional bailiff and his staff are not exactly lawyers; they are people who are told a debt is unpaid and are instructed to distrain assets in settlement.

The bill proposes to use these same pleasant fellows and to give them confidential taxpayer information so that they can do their job. The Justice Ministry, and not the the Finance Ministry, administers the bailiffs.

Activity shifted

If a company with an income-tax or VAT debt transfers its activity to a 25-percent-or-more major shareholder, directly or indirectly, for less than full consideration and is then unable to pay the tax debt, it is proposed that the tax debt is collectible from the shareholder. The same would apply if the major shareholder transfers an activity to the company.

This will supplement rules making a company liable to pay the tax debt of another commonly controlled company if an activity is transferred between the two companies.

Tax dispute

Under current law, in the event of a disagreement between the Israel Tax Authority and the tax payer, the tax not in dispute must be paid immediately. It is proposed to require a guarantee to cover potential payment of the tax in dispute.

Flee injunctions

It is proposed to allow the courts to issue an injunction preventing a 25%-or-more shareholder of a private close company (five or fewer shareholders) with a tax debt from leaving Israel.

Late VAT It is proposed to allow the VAT Authority to withhold a VAT refund if a VAT return is 90 days late.

Cash payments

It is proposed to forbid cash payments above NIS 10,000, instead of NIS 20,000 under current law. Amounts above these levels must be paid by bank transfer, credit card or check.

Infringements will result in 15% penalty for the payor.

Money laundering

It is proposed to make deliberate tax evasion, or assisting someone else to evade tax, not only a criminal tax matter but also a money-laundering offense.

This will also apply to false accounting or reporting, forgery, concealment, destruction or changes to accounting records, causing others to do so and giving false answers to questions.

To sum up Tax enforcement is going to be further tightened. Beware.

As always, consult experienced tax advisers in each country at an early stage in specific cases.

leon@hcat.co Leon Harris is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.