Bloomberg BNA’s Premier International Tax Library is a comprehensive global tax resource. Trust Bloomberg BNA's Premier International Tax Library for the guidance you need on...
By Ben Stupples
Aug. 18 — Israel has backtracked on plans to crack down on tax evasion by scrapping changes to a law that exempts residents from tax on foreign earnings.
The Finance Ministry's first state budget draft had proposed altering two articles of the country's Income Tax Ordinance, which allows foreign or returning Israeli residents to pay no tax on income earned from overseas assets for a decade after the date on which they became an Israeli citizen.
But lobbying against the proposed changes by Sofa Landver, cabinet minister for immigrant absorption, has blocked a vote on the proposals—which means that new immigrants and returning Israelis will remain exempt from disclosing their foreign earnings.
Landver argued the changes would have deterred entrepreneurs and wealthy individuals from moving or returning to Israel, according to the Tel Aviv-based newspaper Haaretz.
Daniel Paserman, a partner at the law firm Gornitzky & Co. in Tel Aviv, told Bloomberg BNA Aug. 4 that anyone with “skeletons in their closet” would have been deterred by the proposed amendments. “This was included last year and was eventually taken out,” he said.
The Israeli law—similar to the U.K.’s non-domicile legislation that allows residents who have their permanent home outside the country to pay no U.K. tax on foreign income—was introduced as an incentive to attract Israeli citizens who had emigrated. The lack of required disclosure has since created opportunities, however, for new arrivals to take advantage of the incentive and evade paying tax.
“The bottom line is that the government wants to have all the possible information in order to audit the taxpayers,” Paserman said on why the Finance Ministry originally included the changes.
The government's proposed tax changes come as the Israeli Tax Authority announced Aug. 1 that French tax authorities turned over a list of unreported foreign bank accounts at HSBC Switzerland, including 8,000 Israeli-held accounts. The authority plans to initiate an investigation into whether these accounts have been reported under its voluntary disclosure procedure, which has been extended until Dec. 31.
Tax Authority Director Moshe Asher has encouraged Israeli taxpayers with foreign bank accounts to avail themselves of the voluntary disclosure program. Following legislative amendments earlier this year, tax evasion is now an underlying offense to money laundering, subject to criminal prosecution. The voluntary disclosure program grants immunity from prosecution but will still require taxpayers to pay back taxes and penalties.
Israel has inadvertently emerged as a tax shelter under laws designed to encourage Jewish immigration, Asher said in December 2013 at the Institute of Certified Public Accountants in Jerusalem. The government granted new immigrants and returning Israelis a five-year exemption from paying taxes on their foreign assets in 2003. Five years later, Amendment 168 to the Income Tax Ordinance doubled the exemption period to 10 years.
With assistance from Joanne Baxter in Washington.
To contact the reporter on this story: Ben Stupples in London at firstname.lastname@example.org
To contact the editor responsible for this story: Penny Sukhraj at email@example.com
The original draft budget, in Hebrew, is at http://src.bna.com/htd.
Israel's news release on the turnover of HSBC documents is at https://taxes.gov.il/About/SpokesmanAnnouncements/Pages/Ann_010816_1.aspx.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)