Recently, the law for tax benefits and tax advice was passed by the Knesset, which amends the Income Tax Ordinance, the VAT Law, the Customs Ordinance and other legislation in the tax field concerning the increase in the duty to disclose tax planning to the Tax Authorities. In the legislative proposal the legislature explained that in recent years the use of aggressive tax planning to decrease the tax burden has grown in such a manner that it does meet the purposes of the legislature. To that end, many taxpayers turn to the assistance of professional opinions from lawyers, accountants, tax advisers, in the majority of cases secretly and without disclosure thereof to the Tax Authorities.
According to the explanatory notes, this situation makes it difficult for the Tax Authorities to conduct efficient investigations and to collect tax as per law. A list of some 13 tax plans which are required to be reported is currently set forth in the Income Tax Ordinance. However, this list does not provide a solution to the problem, since the aggressive tax planning market is growing faster than the legislation.
Therefore, the new law imposes a broad reporting obligation on taxpayers to report to the Tax Authorities about the receipt of tax advice. This time it is to include all opinions which were intended to give the taxpayer a tax advantage, which meets the criteria set forth by law. A tax advantage is defined in the law as any benefit or concession from tax, or deferral of a tax event, a decrease in the amount of withholding tax or avoiding the obligation to deduct tax at source or expenses or loss and the deferral of the date of payment of tax.
It is emphasized that the opinion itself does not need to be attached – only a report on the fact that such opinion was received and for what matter it was given with respect to the activities of the taxpayer. Thus, it is necessary to specify for what economic activities of the taxpayer the advice was received and whether it affected withholdings, decrease, classification of the income or expense. This report should be attached to the relevant annual report as it applies to the tax consultation.
Opinions which should be disclosed, include – inter alia – opinions in writing for which it is agreed to pay a fee of at least NIS 100,000, which create a tax advantage for the taxpayer. It is also necessary to disclose opinions which provide off the shelf planning – that is an opinion which has standard content, which is given to at least three different taxpayers, within two years, which are individually customized for the recipient of the opinion.
Reference: The Tax Benefits and Tax Advice (Legislative Amendments) Law, 5776-2015