Voluntary Disclosure – practical issues

The currently VD procedure was announced nearly two years ago, and is set to expire at the end of December 2016. The two sub-routes (anonymous/short) have both also been extended to the same deadline.

After nearly two years, the first cases have been settled, and more in the process of being settled. So, what lessons are being learned, and what should you be aware of when entering the process? The below items are based on personal experiences, as well as those of colleagues and acquaintances in the field.

• The initial investigation stage can take anywhere between 1-6 months. Rejections are normally fairly swift in coming (e.g where there is prior information), approvals often take a little longer, and tend to request supplemental information not strictly related to the criminal aspect of the case. This information will almost certainly be requested anyway, so may as well be prepared and supplied.
• Taxes are being levied 10 years in arrears. The timing is based on when the initial disclosure is filed, not when the file comes to audit. On a practical basis, this means that any disclosures made now are having to file and pay taxes from 2006 onwards
• Although not written anywhere, the tax authority are asking for a percentage of the capital in the various previously-undeclared accounts. This is based on the tax authority being unsure of the taxability of the monies that were in the account; as far as they’re concerned, the monies were earned in Israel, not declared and hence should now be taxed. So to the extent that the veracity of the funds can be proven (e.g. inheritance, followed by paperwork showing no other injections of funds), the chances and amount of the capital “penalty” are likely to be reduced.
• There are no reductions for payment of actual taxes due. So the nominal tax will be due, together with full interest and inflation (“linkage”) charges. On a practical level, the tax is often imputed onto a later year (e.g. 2013 or 2014) for technical reasons. This should have no impact on the income tax due, but could have implications for Bituach Leumi.
• Fines for late filing, late payment of tax etc. do not seem to have been levied, although there is no reason for them not to be should the inspector wish.

If you have yet to declare all of your income to the Israeli tax authorities, the time to do so is NOW. Contact us today to set up an appointment to discuss your circumstances.