On June 30, 2016, the scheduled last day for applying for the voluntary disclosure procedure in Israel ("the VDP"), which was introduced on September 7, 2014 and has attracted over 5,100 applications so far, disclosing undeclared capital of approximately NIS 17.5 Billion, the Israeli Tax Authority ("the ITA") announced an extension of the VDP ("the Announcement") until December 31, 2016.
According to the Announcement, the extension was approved principally in order to open a final "window of opportunities" for taxpayers to declare unreported income and assets in light of the recent amendment of the Capital Laundering Prohibition Statute, 2000 ("the CLPS"), according to which some tax violations will be considered "source crimes" that are subject to more severe sanctions (as reported in our article dated March 31, 2016). The criminal immunity granted to taxpayers under the VDP will be extended to include charges according to the CLPS.
As we explained in previous articles (including our article dated January 8, 2015), under the current VDP, Israeli taxpayers wishing to declare their unreported offshore bank accounts, or other unreported income and assets, are required to submit a named or anonymous application to the Senior Deputy Director General (Investigations and Intelligence) of the ITA, requesting that their applications be accepted under the VDP. Provided that such applications are not made subsequent to an ongoing tax investigation, the applications are usually approved, with the applicants obtaining full immunity from criminal prosecution. However, such a grant of immunity is conditioned upon the settlement by the Israeli residents of the full Israeli tax liability owing on their offshore bank accounts, and the applicants are required to approach the relevant income tax assessing officer, report the amounts of unreported income and pay the applicable taxes.
Our experience in representing individuals, trusts and corporations applying for the VDP has shown that, after engaging in professional and uncompromising negotiations with the income tax assessing officer, a tax agreement can be reached pursuant to which the average tax ratio that applies on the income and gains generated during the last ten years is about 25%, and the tax ratio that applies undeclared assets that were held by the taxpayer before more than 10 years and he can't prove they are not taxable in Israel, is between 10% - 20%.