Israelis are preoccupied with a number of national pastimes that stretch the intellect; they include politics, chess, music and tax planning. The Israeli Tax Authority are curious about the last one and legislation was passed recently, which requires taxpayers to disclose anything you did if it appears on a blacklist of "reportable tax planning acts." For the complete list see the article on "Reportable tax shelter laws - aka aggressive tax planning" (The Jerusalem Post December 6, 2006). If you committed any such reportable tax planning act you must report it on your annual tax return. If the assessing officer considers your act to be "artificial or fictitious," you may face a deficiency fine of 30% of the tax shortfall and even a year in prison. Some may consider that aggressive tax enforcement. However, no such exposure arises if you obtain an advance tax ruling from the Tax Authority. There are 14 reportable tax planning acts on the blacklist, including two that relate to Value-Added Tax. Since VAT is reported monthly or bi-monthly, the Israeli Tax Authority has just issued VAT Circular 1/07 to kick off the process. The standard rate of VAT is 15.5%. The two VAT reportable tax planning acts and the new procedure are discussed below. First act: where a group of buyers contract via an organizer to acquire land and build on it. It has become common in Israel for people to club together to buy land and build - however, if a private landowner sells land to the investment group, there is an exemption from VAT. Therefore, the Tax Authority now wants to check if the landowner is really in business or if the organizer takes title to the land. In either case, the VAT Authority may seek to collect its VAT on the land after all. The landowner and the organizer must both report the act to the Tax Authority on a new special form (unless they received an advance ruling), generally with their monthly or bi-monthly VAT return. Even if the organizer is not in business, he must file a one-time transaction VAT return. As a transitional relief, the first report for tax planning acts committed in the first half of 2007 must be filed by July 15, 2007. Second act: where financial institutions or charities hold 75% or more of a business alone or together with other such bodies. These cannot normally recover input VAT on their expenditure. So the VAT Authority want to check out situations along the lines of the following example: a business entity buys a major item for, say, NIS 20 million plus VAT of NIS 3.10m., reclaims the VAT immediately and then leases it over 20 years (NIS 1m. per year plus VAT of only NIS 155,000 per year for 20 years) to the financial institution or charity that owns it. It seems the VAT Authority doesn't like being kept waiting for its VAT. The company and the financial institution or charity must each report the act to the Tax Authority (unless they received an advance ruling), generally monthly or bi-monthly. As a transitional relief, the first report for tax planning acts committed in the first half of 2007 must be filed by July 15. As always, readers should consult professional tax advisors in specific instances. email@example.com The writer is an International Tax Partner at Ernst & Young Israel.