From the year 2005, the term “voluntary disclosure” entered the public consciousness when the Tax Authority introduced its first voluntary disclosure procedure. In its initial form, this procedure allowed individuals who hadn’t reported their income to rectify their reporting and tax liabilities while receiving criminal immunity in return. Over time, between the years 2011-2019, the Tax Authority introduced three additional provisions that allowed for voluntary disclosure of unreported income.
The conditions for voluntary disclosure have evolved over time. In the earlier stages, the Tax Authority’s primary goal was to “catch” individuals who hadn’t reported their income, making the process relatively simple and expedited for those willing to come forward and settle their tax debts in the ten years preceding the tax year. However, in the later stages, the Tax Authority has become stricter.
While criminal immunity is granted under each version of the voluntary disclosure procedure, it is important to note that in the latest procedures, the Tax Authority focuses not only on capturing the taxpayer but also on examining aspects of money laundering. This is especially relevant following Amendment No. 14 to the Prohibition of Money Laundering Law, which took effect on October 7, 2016. This amendment established that tax evasion offenses constitute a source of offense under the aforementioned law.
In practice, this has resulted in the Tax Authority requesting documentation for the source of funds. In cases where it is not convinced that the source of the funds is legitimate and compliant, it imposes taxation (in addition to the regular income tax for the ten preceding years) at a rate of 10%/15%, and in exceptional cases, even 50% of the entire fund.
Recently, the Tax Authority introduced a new voluntary disclosure procedure known as “Crypto.” The cryptocurrency market is gaining momentum by the day, especially with the anticipated Bitcoin halving event this year and the recent approval of Bitcoin ETFs. The Tax Authority has also released a “Guideline for Receiving Tax Payments for Profits from Distributed Means” to simplify the tax payment process for cryptocurrency investors, addressing the challenges banks face in receiving these funds. It seems that the Tax Authority is laying the groundwork for an upcoming crypto voluntary disclosure procedure.
It’s important to pay attention to two interesting points:
- If we examine the history and development of voluntary disclosures, we can anticipate that the process for a voluntary crypto disclosure will likely be more stringent. Additionally, investigations into the funds, as well as the tax rates applied in cases where the tax officer is not satisfied, are expected to be higher.
- Typically, the tax authority employs a ‘carrot and stick’ approach. Previous voluntary disclosure procedures offered a limited-time opportunity to regulate undeclared income before the authority initiated enforcement actions. For instance, the 2014 voluntary disclosure procedure was introduced about a year and a half before the tax authority made a significant announcement about receiving information on numerous Israelis holding bank accounts in Switzerland. Following this, the transition to criminal proceedings for those who had not reported was notably swift. It should be noted that in practice, even today, it is possible to regulate both general and crypto-specific profits and income that were not reported at all, through assessment discussions with the tax authority and signing an assessment agreement at the end of the process.
Our office includes former senior officials in the tax authority, lawyers, accountants, tax consultants, economists, and has extensive experience in the field of crypto, voluntary disclosures, and regulating tax liabilities for undeclared income.
