Analysis

Why Isn’t Netanyahu Being Charged With Tax Evasion?

Netanyahu may owe taxes for the illicit gifts he allegedly received, but tax evasion isn’t mentioned in the charge sheet

Israeli Prime Minister Benjamin Netanyahu chairs the weekly cabinet meeting at his office in Jerusalem on November 24, 2019.
AFP

The indictment drawn up against Prime Minister Benjamin Netanyahu in Case 1000 involves gifts he allegedly received from businessman Arnon Milchan, in exchange for helping the latter extend his Israeli tax benefits. Milchan allegedly gave Netanyahu gifts for years - primarily cigars and champagne - and in exchange requested assistance in his dealings with the state.

But the tax implications in this case don’t relate only to Milchan. Netanyahu, known for being someone who doesn’t like to take out his wallet, should be directly liable for hundreds of thousands of shekels in tax payments for the gifts he allegedly received.

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According to the indictment, between 2011-2016 Netanyahu and his wife Sara received gifts from Milchan frequently and on a regular basis, to the point of amounting to a “supply line” of cigars and champagne. The Netanyahu’s allegedly received cigars worth 270,000 shekels, champagne worth 185,000 shekels and jewelry worth 11,000 shekels. In addition, between 2014-2016 the Netanyahus received from businessman James Packer cigars worth 146,000 shekels and champagne worth 84,000 shekels. The total value of these alleged gifts came to 690,000 shekels.

Based on what’s written in the indictment, these gifts appear to have been provided systematically, with Netanyahu’s knowledge and due to his status as prime minister. Thus, the corresponding conclusion must be that Netanyahu owes the country taxes - because all forms of income with financial value, whether it be money or something worth money - needs to be reported to the tax authorities and tax needs to be paid on it.

Under the accusations, Netanyahu was aware of the extent of the gifts and even tried to hide them. He didn’t declare his conflict of interest regarding Milchan to the state comptroller. If Netanyahu received champagne and cigars due to his position, knowingly, continuously and not sporadically, while taking action to hide these gifts, that amounts to intentional tax evasion.

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And yet, Case 1000 does not mention any tax offenses, and the prosecution is focusing on charges of fraud and breach of trust. Was the tax authority involved in the investigation? It won’t say. A criminal conviction on tax charges would also enable the authorities to handi Netanyahu a tax bill.

It’s not clear whether the tax authority has launched any civil proceedings against Netanyahu either, to demand that he pay duties on these gifts - taxes that would amount to some 50% of their value. Including fines and interest, the total payment could come to close to 500,000 shekels.

Furthermore, if Netanyahu didn’t file tax returns regarding these gifts, then the statute of limitations may not apply to any taxes due - and he may be liable for tax payments on any gifts that predate the case in the indictment.

Personal exemption

One of the initiatives that Netanyahu advanced at Milchan’s behest was lengthening his exemption from paying Israeli income taxes. The story involves a far-reaching tax reform passed in 2008 and applied retroactively to 2007, which exempted new citizens and gave Israeli citizens returning from an extended period abroad a 10-year exemption from reporting and paying taxes on income earned abroad, whether from capital gains or work overseas. This benefit is often used by wealthy individuals who can become Israeli residents all the while remaining beyond the radar of Israel’s tax authority for a full decade; they’re not even required to report their revenue to the Israeli authorities.

The driving spirit behind the legislation was Attorney Pinchas Rubin, the lawyer representing Milchan and other wealthy individuals. Rubin worked with Milchan five years later in an attempt to enable individual extensions to the reporting exemption. According to the indictment, in August 2013 Milchan contacted then-Finance Minister Yair Lapid - now a leading Netanyahu opponent in the Kahol Lavan party - with a request to implement regulations allowing for an extended exemption.

That request was based on a 2009 amendment that enabled the finance minister to extend by another decade the exemption for individuals who met certain standards for investing in Israel.

Lapid expressed reservations regarding Milchan’s request, and asked the Finance Ministry’s Budgets Department to prepare an official opinion, according to a Haaretz investigation last year. He later told Milchan that he wouldn’t be advancing regulations to help him in this matter. Milchan then asked Netanyahu to intervene. Netanyahu spoke about the matter with Lapid in two professional meetings, and mentioned that he’d discussed it with Milchan. Lapid said he didn’t believe that the exemption should be extended.

According to the indictment, Milchan received the status of a returning Israeli citizen in 2009, which would mean that his reporting exemption expires this year. So what happens now? Is Milchan going to curtail his Israeli residency status so that he doesn’t need to start reporting overseas income and paying taxes accordingly - or will he start reporting and paying taxes in Israel?

The first option worries the Israeli tax authority, which fears that international businesspeople will establish residency in Israel to use the country as a tax haven for a decade - and then move on to the next haven. Officials want to retroactively shorten the exemption to five years for those who leave the country after 10 years. However, this would require a legislative amendment and is likely to raise stiff opposition, particularly due to the retroactive component.

The Justice Ministry did not respond by press time.