Voluntary Disclosure Procedure and Banking Information Exchange

Voluntary Disclosure Procedure and Banking Information Exchange

January 29, 2018

The CRS agreement for the automatic exchange of information between the tax authorities, which is expected to be implemented in Israel soon, is intended to fuel the fight against black capital. As a result of the agreement, Israel is expected to automatically receive information about bank accounts held by residents of Israel from dozens of countries around the world. The Tax Authority has set up a special unit to process the information and cross it with other sources of information in order to locate tax evaders. As a result of the CRS agreement, one can expect a wave of investigations and arrests of Israeli residents who failed to duly report to the tax authorities on assets outside of Israel.

In light of the agreement and its implementation, at the end of 2017, the Tax Authority published a new "voluntary disclosure procedure" to enable Israelis who did not report their full income and capital to conduct a process of providing information and paying tax in return for exemption from criminal proceedings in Israel. This procedure represents the last opportunity for those Israelis to reach an agreement with the tax authorities regarding their unreported capital, in a speedy proceeding, which grants full criminal immunity in Israel. However, these procedures should be carried out carefully to avoid criminal liability in other jurisdictions.

Three types of routes are available for taxpayers: the regular route, the anonymous route and the short route. While under the regular route the taxpayer approaches the tax authorities directly, at the anonymous disclosure route, which until now has been the most popular (about 60% of the disclosures), involves anonymous negotiations with the tax authorities through a representative, after which the taxpayer is free to decide whether to sign the reached agreement or abandon it while the tax authority do not have the taxpayer’s details. The short route may be undertaken when the undeclared capital is less than ILS 2 million and the taxable income accordingly does not exceed ILS 500,000, and in which case criminal immunity is received without even having to negotiate with the Tax Administration.

In order to participate in any one of the voluntary disclosure procedure routes the subject capital must be of legal source and produce proof to that effect to the Israeli tax authorities. In this regard it is important to note that the Israeli tax authorities grants immunity for tax offenses and money laundering offenses resulting from tax offenses but does not, in any way, grant criminal immunity to other types of offenses or in other jurisdiction. Thus, due to the fact that Israeli banks are soon to report funds, voluntary disclosure procedure, unless properly made with the assistance of lawyers knowledgeable in the field and that are part of a network of offices that has an office at the jurisdiction where the funds are, may cause a situation where "hidden funds" outside of Israel will become overt and cause criminal liability in other jurisdictions.