Tax authority clamping down on non-reporters

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Over the last fortnight or so, the tax authority has sent out a number of letters to Israeli residents whom it suspects have not reported of the income that they are thought to receive – and hence not paid the relevant taxes.

The head of the tax authority told a gathering at which a colleague was present that approximately 93,000 such letters were sent out. There seem to be two main possible lines of approach by the tax authority:

(1) Those owning 3 apartments or more – it is an assumption that there will be rental income over and above the exemption limit. This information would likely have been taken from the Tabu (Land Registry).

(2) Those with foreign sources of income. My guess is that various co-operation agreements have been reached with other tax authorities around the world, whereby names of Israelis with foreign tax files – or perhaps even just incomes that the tax authority know about (e.g. bank accounts, pensions etc.) – have been passed to the Israeli tax authorities.

I have already seen a number of such letters. The first page is a request to fill in the attached form within 30 days, and send it back to a special department that is dealing with these letters. Presumably they will then decide what to do with these (i.e. if to open a tax file, and if so, which years to request, capital statements etc.) and pass their decision onto the local tax assessing office.

The form is the standard form to open a tax file (see here). Whilst most of the details are not normally filled in, in this situation I would recommend giving as much infomation as you can, adding extra details on an appendix if necessary. You may want to consult with a professional before filing the form.

For anyone to whom this may be applicable (including those who haven’t been “caught” yet), I suggest reading this post regarding some of the principles of Israeli taxation. Furtheremore, see if you are eligible for exemption from filing a 2013 tax return as per the rules set out in this post.

It has also been rumoured that the tax authority are planning – in the coming weeks – on encouraging people to come forward, sort out the past taxes owed without too much in the way of fines, interest, linkage etc, and getting them into the general tax system – this is known as a Voluntary Disclosure Procedure. However, until formal guidelines are published, it is impossible to say what the incentives will be.

Meanwhile, it is obviously better to come forward to the tax authority rather than waiting for them to come to you. So make sure you are fully compliant!