The Israel Tax Authority ("ITA") has published a list of tax positions, which require reporting, with regard to income tax, VAT and import taxes. As opposed to an income tax related position, which must be reported in the yearly tax return, in the case of VAT and import taxes (Customs, Purchase tax and VAT on imports), the reporting of the tax positions must be made via a special report which appears on the ITA's website, and be electronically submitted within 60 days of the tax year in which the position was taken. It should be noted that on January 30, 2017, the ITA announced that the final submission date will be postponed from March 1, 2017 to the earlier of July 1, 2017, or the submission date for the 2016 yearly income tax report to the ITA.
Who is obligated to submit the report?
A VAT Dealer whose turnover exceeds NIS 3 million and a Financial Institution are required to submit the report, if they have taken a tax position in the 2016 tax year which was opposed to a tax position that was published as a tax position by the ITA, which requires reporting. It should be noted that a Public Institution and a non-profit organization, in addition to a VAT Dealer whose turnover does not exceed NIS 3 Million, are not required to submit the report.
It should be emphasized that the failure to report a tax position, which requires reporting, constitutes a criminal offense, and with regard to VAT, in certain circumstances if an assessment is issued due to the lack of reporting such a tax position, then this may lead to the imposition of a deficiency fine.
Which Tax positions require reporting?
A tax position which is opposed to a tax position which was published by the ITA as a tax position that requires reporting, and in respect of which the tax benefit derived from it, is greater than NIS 2 million per year, or NIS 5 million over a four year period.
The tax positions which were published regarding VAT, concern the deduction by holding companies of input tax, importing services from abroad (which is also relevant for a financial institution), and the leasing of a dwelling unit by a company. Additional positions which require reporting are zero rate VAT with regard to services, which are included in the value of the goods, for customs purposes; the VAT obligation with regard to a VAT Dealer's receipt as a result of a tortious event; the cessation of a contract or a delay in payment; the reason or justification for the cancellation of a reduction, and other positions.
In a clarification published by the ITA, it was determined that VAT dealers (as opposed to financial institutions) which import services from abroad, will be required to report in this regard, provided that they acted by opposing the position of the ITA, as from January 1, 2017 only, and accordingly, will not be required to submit a report with regard to this position, within the 2016 report.
For the list of the Tax positions which require reporting regarding VAT, click here.
The tax positions published regarding import taxes concern the value for customs purposes, (including advertising expenses, distribution costs, warranties and discounts, transportation, royalties and services). In addition, tax positions have been published regarding the classification of goods (motorcycles, ethanol and other denaturated alcohol, the classification of cigarettes and cigars, ABS systems and replacements, eyeglasses frames and packaged contact lenses, rods, aluminum profiles, milk based powder with maltodextrin, adding "sodium casinate" to dried milk, milk based powders and dried dates). In addition, a tax position has been published regarding an exemption for alcohol which is used to produce wine, subject to the wine meeting the standard requirements.
For the list of the Tax positions which require reporting regarding import taxes, click here.