Seizing assets from employees
Can assets be seized from an employee who allegedly participates in tax fraud? If so, how much can be seized? The Israeli Supreme Court ruled on this issue recently (State of Israel v. Irit Frankel, Civil Appeal 5316/22 handed down November 10, 2022). The employee concerned was a deputy chief financial officer in a car rental business which allegedly may have conducted an illegal parallel import operation of cars in 2013-2015, which is the subject of ongoing criminal proceedings.
In her role as deputy CFO, the individual is alleged to have been involved in financial matters, recording transactions in the books, giving instructions to order fake sales invoices, ordering fake certificates of origin, activities regarding the submission of fake import documents by customs agents and liaisons with other participants and subordinate employees in the scheme.
The sums involved in the fraud were apparently around NIS 400 million but the employee claimed she did not receive anything like this amount. Could the Israeli Tax Authority nevertheless move in and seize as much as possible of this amount from the employee?
The Supreme Court ruled that even if not all this money came into her personal possession, Section 21 of the Money Laundering Prohibition Law allows property to the value of that illegally transferred regardless of whether the full amount reached the individual’s pocket or someone else’s pocket.
As for the individual being an employee, albeit a senior one, that does not stop seizure of assets according to the Supreme Court. Nevertheless, this also does not rule out the need for consideration of the status of the individual in the company and her part in the alleged offenses. Therefore, in this case the Supreme Court allowed a temporary seizure order of amounts under the individual’s control (according to a list filed at the court) until the conclusion of the main criminal proceedings or until any other final decision relating to the individual.
If a company commits a tax fraud, it seems its employees are not immune from seizure of personal assets if they were involved in fraudulent actions. However, the amount eligible for seizure might depend on the circumstances. Better not to get involved.
Commercial secrets justified behind closed doors?
The Kfar Saba Magistrate’s Court has turned down a request for court proceedings to be held behind closed doors (in camera) to protect commercial secrets (Nutcracker Technology Solutions vs State of Israel, Taf Peh 3270-09-22 of November 5, 2022).
The company engaged in software solutions relating to information systems and computerization and faced court proceedings for allegedly incomplete compliance with tax reporting obligations (ITO Section 216). The court referred to an earlier decision of the Supreme Court (Varda Ruth Yahel and others v. Tel-Aviv 4 Assessing Officer, Civil Appeal 382/16 of July 13, 2016).
In short, the court called for a public hearing. Even if commercial secrets are involved, no severe harm that might be caused to the taxpayers was proven, and revenues in the years 2018 and 2019 would be open to the public as set forth in the indictment. It was unclear what business advantage competitors would gain from knowing such information or knowing how the company interacted with its auditors. On the contrary, there is public interest in knowing that the taxpayer, a private company, faced criminal tax proceedings.
Having commercial secrets is no reason for keeping a tax court case secret. Better not to get involved. Failing that, consider settling with tax officials. Another possibility might be paying heavier atonement fines in lieu of court proceedings (kofer in Hebrew, from the same root as Yom Kippur), but kofer cases are published annually by the Israeli Tax Authority.
As always, consult experienced legal and tax advisers in each country at an early stage in specific cases. [email protected] The writer is a certified public accountant and tax specialist at Harris Horoviz Consulting & Tax Ltd.