Israeli Tax Dodgers Get Chance to Negotiate Settlements, Avoid Fines

Amnesty international: New procedure aimed mainly at those holding unreported capital abroad.

Emil Salman

The Israel Tax Authority published a long-awaited procedure on Sunday that will let tax dodgers negotiate a settlement with the government anonymously and avoid criminal penalties.

The new procedure, which will be in force for a year, will let people use an attorney, or anyone else given power of attorney to reach an agreement on their behalf – in the majority of cases for money they have been holding abroad.

Based on the outcome of negotiations, the anonymous tax dodger can choose to voluntarily pay his or her liabilities, or reject the assessment and risk being discovered later, thus being liable for a higher assessment and criminal penalties.

“I read between the lines that the Tax Authority is saying, ‘We have enough information to open a criminal proceeding against the people who voluntarily disclose, so this is their last chance.’ From here, it’s a matter of wait and see where they will take it,” said Anat Shavit, head of the tax department at attorneys Fischer Behar Chen Well Orion & Co.

Israeli tax authorities have been cracking down on tax evasion, reaching agreements with the United States and Germany in recent months to share information and taking other steps (see The Ticker on this page). The treasury is hoping that by collecting back taxes it can help close next year’s yawning budget deficit.

Tax lawyers said the new directive could bring in billions of shekels, but Moshe Asher, who heads the authority, spoke about a more modest outcome – “hundreds of millions of shekels, or maybe somewhat above that.”

The Tax Authority said it was also offering a fast-track option for tax evaders with unreported capital of up to 2 million shekels ($550,000) and taxable income derived from it of no more than 500,000 shekels. Without negotiations, they will be able to disclose it voluntarily, pay their back taxes and avoid criminal penalties, it said.

Delays in launching the new procedure had caused tax advisers to tell their clients to wait before reporting any hidden income, according to a lawyer interviewed by TheMarker in recent days.

“There was a lot of anticipation about this new procedure. In my experience, going public [about their taxes] bothers many clients, so that anonymity will lead to a lot of reporting, together with the fast-track for people with just a little money,” said Shavit.

Hagi Elmekiesse, of Haifa-based Artzi, Hiba & Elmekiesse Tax Solutions, said that, until 2005, people who held money abroad and wanted to come clean with their taxes could send an agent to negotiate terms with the Tax Authority, but the authority was under no obligation to offer an amnesty from criminal sanctions.

In 2005, the authority issued a circular that dealt with the criminal penalty aspect for those voluntarily reporting hidden assets. But the Tax Authority set out strict limitations on who could take advantage of the amnesty, forbidding those against whom an investigation had begun or whose wealth had been publicly reported in the media.

Six years later, the authority dispensed with anonymity, but promised those who voluntarily reported that they would be exempt from fines, interest and, in many cases, inflation linkage. For a brief period, the authority even promised anonymity, but that directive expired in September 2012.

Elmekiesse said the government learned from this experience that anonymity helps lure tax dodgers. For the first eight months the directive was in force, it received just 130-140 applications; in the final three months, when it guaranteed anonymity, the number of applications jumped tenfold, he said.

Nevertheless, added Elmekiesse, the new procedure carries risks for those who voluntarily report.

“We’re talking about immunity only for tax violations, violations of the Income Tax Ordinance, but not any other violations,” he said. “So, for example, if someone avoided taxes because the income came as a result of securities law violations or dealing in drugs or any other crime, he won’t get immunity for these crimes.”

In addition, the new procedure announced Sunday doesn’t do away with fines for those who report, and only allows evaders to remain anonymous for 90 days (or 180 days if special permission is granted).

“I don’t know why the Tax Authority restricted itself this way, because the average amount of time it takes for a case is at least a year. Even today there are a lot of cases of voluntary reporting opened in 2012 … that have still not been completed,” Elmekiesse said.