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Last chance for “Voluntary disclosure” in Israel: until the 30/06/2012

Lior Pick & Co. Legal Offices
June 01, 2012
January 17, 2019

Following Amendment 132 of the Income Tax Ordinance which came into force on 01.01.2003, Israel’s tax system has become a “Personal”, according to which each one who is defined in section 1 of the Ordinance resident of Israel (individual and corporate), will be taxed in Israel on all income regardless of where the income has been produced, accrued or received. That means that Israeli residents will be taxed on their income which comes from am Israeli source or a foreign source.

As a result, an Israeli resident who has income derived from foreign assets and is not reporting it becomes a “tax offender “. There are plenty of cases when these Israeli residents were not aware of changing of the law and became tax offenders without their knowledge.

As we know, the Tax Authority has recently increased its efforts to the exposure of the property and funds held by the Israelis out of Israel and not reported.

Consequently, in light of the above, the tax authority has decided that in the following cases, the possibility can be given to residents of Israel who hold assets overseas which were not reported so far, to make “voluntary disclosure”, which would give immunity from turning those cases to criminal proceedings (the “Temporary Order “).

As we know, up today making voluntary disclosure was according to the procedure of 10.04.2005 (the “usual procedure”). Compared with the usual procedures, the temporary order offers significant ease both in the collection procedure and the logistics of the process and mainly – the combined handling of the criminal and civil aspects.

Listed below are the major issues of the procedure:

1. Easements will be granted only to residents of Israel who will perform the voluntary disclosure procedure until 30/06/2012.

2. Temporary Order shall apply to any case where the Commission (composition described below) will find that is appropriate to apply it.

3. The following list of examples of cases which are the subject to the Temporary Order (list is not closed):

a) Not reported income derived from foreign assets inherited or received as gift from a foreign resident.

b) Not reported income from foreign assets purchased from funds derived from generating income in Israel or abroad, taxes on which were paid or which was not subject to tax in Israel.

c) Foreign assets that creates unreported income, due to the tax liability that rises following the Amendment 132 of the Ordinance, since 2003.

4. Temporary Order shall not apply to assets and income produced as a result of a criminal offense “crime” under the Penal Law. In addition, Temporary Order shall not apply when the request to voluntary disclosure is submitted following or in parallel with investigation carried out by any State authorities.

5. Request to carry out the temporary order will be examined by the committee headed by Attorney General, Deputy Director for Investigation and Intelligence, Vice President Professional Affairs and Deputy Director for Assessment and Review (the “Committee”).

6. After the reception of the application, a preliminary examination will be performed, in order to determine whether the case stated in the request meets the conditions listed above and is worthy of being discussed by committee.

7. The request that does not meet the specified conditions will not be dealt with by the committee, but the information submitted in this request will not be used in the criminal and civil process.

8. Request that meets the criteria listed above will be approved by the Committee and the applicant will receive the immunity from any criminal sanctions re taxation with tax authority, according to the routine terms and conditions.

9. In addition, the Commission will examine the tax consequences arising from the request and determine civil tax assessment, including the possibility of an agreement with the applicant. It should be noted that if there is a case conducted on the applicant name, assessor would share the aforesaid examination and its results.

10. The tax assigned in accordance with the civil assessment to the applicant will not accrue interest and penalties. In addition, the Commission may grant concessions for indexation differentials of tax applicable to committed, up to their total abolition.

11. In case where during the process of clarification of the facts in determining assessment, were revealed the details that were not included in the applicant request, and subsequently turns out that the application is not suitable for treatment under the Temporary Order, any information specified in the request will not be used in the criminal and civil process.

The aforementioned should not be perceived as a recommendation and/or expression of opinion. In all instances we recommend receiving professional individual advice in accordance with the concrete circumstances of each and every event.

We would be happy to be at your disposal for any queries and or explanations regarding this matter or in general.

Yours sincerely,

Lior Pick & Co. Legal Offices

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