220 Israelis warned over unreported foreign accounts

At the start of November, 220 Israelis received a letter from the Tax Authority informing them that an income tax file type 93 had been opened for them, as salaried employees with income from several sources with tax deducted at source or income from abroad. The recipients of the letters were asked to file tax reports going back to the relevant year for them. The letter ended, “We wish you luck and look forward to cooperation with our office.”

The sought after “cooperation” is in practice a demand from the Israel Tax Authority, headed by Eran Yaacov, from the Israelis who received the letters to reveal all the income that they have hidden to date in overseas bank accounts. Each letter had a different year from which to report and a different tax assessor’s office, individually tailored according to the information received. But the meaning of each letter was the same – the Israel Tax Authority is telling each recipient that they have been caught out over their overseas bank accounts and are now being given a chance to report it. An income tax file has been opened for them and they are now expected to report their income.

Later in the letter – under the heading “Explanation on filing reports for those holding a bank account outside of Israel” – the Israel Tax Authority explains to the recipients, “From data in the possession of the Tax Authority it appears that you hold an account in a banking corporation outside of Israel, and therefore you are required to submit an annual report to the Tax Authority.”

The Authority refers the recipients to the provisions of Section 131 of the Income Tax Ordinance, according to which an individual resident of Israel must, among other things, submit an annual report to the Tax Authority, if one of two conditions is met: holding an account in a banking corporation outside Israel whose balance in the tax year exceeds NIS 1.87 million, and the income generated in the account exceeds NIS 337,000 in the tax year; and the holding of the account in a banking corporation outside of Israel in which revenue grew for which tax advances were not paid legally.”

The 220 letters sent out earlier this month are part of a national campaign by the Israel Tax Authority “to find individuals who hold bank accounts outside of Israel”. In the coming months, the Israel Tax Authority will send out hundreds of hundreds more such letters to citizens, including a demand to open a file and file reports according to Section 131 of the Income Tax Ordinance.

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Tax Authority pursues Israelis holding foreign bank accounts

The letters are being sent following receipt of 90 lists given to the Israel Tax Authority from tax authorities around the world, through which it was revealed where the Israelis keep accounts that they have not reported until now. The countries in which the largest amount of accounts in the name of Israelis have been reported so far are: the US (about 19% of all the accounts reported), Switzerland (10.5%), UK (9.6%), France (6.1%) and Romania (5%).

The average bank balance in the uncovered accounts is NIS 5 million – while typically accounts have about NIS 4 million, while some of the accounts have hundreds of millions of shekels.

The result of international collaboration between tax authorities

Today, the Israel Tax Authority receives detailed information from the US under the FATCA agreement, under which it has begun to transfer information to its US counterpart the Internal Revenue Service (IRS), about the financial assets of citizens with ties to the US, and in return – to receive information about Israelis who have accounts in the US. At the same time, the Israel Tax Authority receives information within the framework of the Common Reporting Standard (CRS), which establishes an automatic exchange of information on banks accounts of foreign residents in Europe and other countries.

The information received by the Israel Tax Authority since 2019 has led to the disclosure of hundreds of unreported bank accounts of Israelis abroad, in which tens of millions of shekels have been deposited. Some of the cases have been subject to investigations and criminal proceedings, and in recent years several indictments have been filed against Israelis with unreported accounts.

These are usually cases where huge amounts of money and income have been concealed over the years, and violations have been committed in not reporting the assets to the Israel Tax Authority. In May 2022, about 20 suspects were questioned whose names were on lists of bank account holders obtained through CRS procedures. The unreported funds totaled more than NIS 85 million.

One of the suspects, a Safed resident, was questioned for allegedly possessing NIS 6.5 million in bank accounts abroad between 2017 and 2022. According to the bail application submitted to the assessor in Haifa and the North investigating the case, it appears that the suspect withdrew NIS 8,000 every month from these bank accounts with a credit card. The suspect had also withdrawn $150,000 through a Jerusalem-based financial service provider.

“The Tax Authority will continue to locate unreported capital”

Some unreported foreign bank account holders whose names have been disclosed to the Israel Tax Authority, are not being investigated in criminal process, but have instead been transferred to a civil process – income tax files are opened for them, and they are asked to report. The 220 Israelis who received letters earlier this month fall into this category.

The Israel Tax Authority said, “In the near future, the Authority intends to continue to locate individuals, companies and trusts that do not comply with the reporting obligations set forth by law, and to carry out appropriate enforcement actions.”

Published by Globes, Israel business news – en.globes.co.il – on November 22, 2022.

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