Israeli Lawmakers Advance Bill Making Tax Evasion Criminal Offense

Law, which still requires Knesset approval, would regard tax evasion as money laundering and bring stiffer penalties.

Dreamstime

The Knesset Constitution, Law and Justice Committee on Sunday approved legislation that would make tax evasion tantamount to money laundering, making violators subject to much more severe penalties.

The legislation, which now goes to the full Knesset for its second and third readings before becoming law, turns intentional tax evasion into a criminal offense in cases where evasion involved exceeded a million shekels ($260,000) in one year or 2.5 million shekels in four years.

It will also apply to people convicted of failing to pay value-added tax of more than 170,000 shekels on one year or 480,000 shekels over four years.

The draft law comes amid a major campaign by the government to impose tougher rules on tax evasion and step up enforcement and investigations, including of Diaspora Jews who have made Israel their home and have taken advantage of liberal reporting rules, and share more information with foreign tax authorities.

The legislation will allow the Anti-Money Laundering Authority to share information with the Israel Tax Authority, giving tax investigators better tools for cracking down on evasion. In cases where the information is shared by the two government bodies, the Tax Authority will have the right to temporarily impound the assets of suspected violators.

However, the law will impose rules on tax investigators to prevent them from abusing impoundment authority and ensure the rights of suspects to continue to live their private and business lives as normally as possible during a probe. The attorney general or state prosecutor will set the limits on impoundments, under the terms of the legislation.

The draft law, which was first voted on in the Knesset during Prime Minister Benjamin Netanyahu’s previous government in August 2013, was approved by lawmakers after just three-and-a-half hours of deliberations on Sunday. Lawmakers were mainly divided over the issue of how to impose stiffer penalties if tax violations were to be regarded as money laundering.

Under current law, tax violations can end in a prison sentence of no more than seven years, but money laundering violations can carry sentences of up to 10 years. If the legislation is passed as it is now by the full Knesset, tax violators be liable to the same top penalty.

MKs disagreed about whether tax violations should be included in the predicate offenses section of the Money Laundering Law, which deals with the most serious cases, such as gambling and drug-related offenses. In the end they compromised on a formulation that put only the heaviest tax offenses under the category.

However, they did agree that fictitious invoicing would be including in predicate offenses even when they were done under aggravated circumstances. In the area of land taxes, tax offenses will be regarded as predicate offenses if the violator failed to report the transaction at all, reduced the sale value of the property by more than 1.5 million shekels or misreported the parties to the transaction.

Moshe Asher, the tax commissioner, told the Knesset committee Sunday that he would be seeking an extension on the amnesty for tax evaders to voluntarily report without fear of prosecution. The extension would also apply to money laundering violations arising from tax evasion, he said.

The amnesty is now slated to expire in June, but Asher said he would be consulting with Attorney General Avichai Mandelblit about extending it for a few more months or until the end of the year.