The Supreme Court recently upheld criminal convictions against a company and its active director for not paying taxes withheld from salaries and suppliers to the Israel Tax Authority (December 23, 2008, criminal appeal administration case 7504/08).
The Tax Authority felt this important enough to bring to the public‘s attention earlier this month on its Web site.
For 15 months in the years 2001-2002, the company and its directors failed to pay tax withheld from payments to employees and subcontractors on time in the amount of NIS 776,912.
In addition, the company and its directors did not file a timely annual corporate tax return for 2002. In 2001, the company reached a settlement with the Tax Authority to pay off its tax debt by way of 15 post-dated checks. Only eight checks were cleared and the company went into liquidation.
Magistrates‘ Court: partial conviction
Initially, the Magistrates‘ Court convicted the company and its active director on seven counts of nonpayment of tax withheld and not filing a tax return on time regarding 2002. The court concluded that the company acted as required regarding 2001 with reasonable cause, because of the settlement and the economic state of the company. In 2002, the company did not reach any settlement with the Tax Authority and chose to invest the money in the company instead of paying its tax debt.
District Court: finds no good cause
The Tax Authority appealed to the District Court, which ruled that the 2001 tax settlement for late payment of the tax should have been honored, and the parlous economic state of the company did not constitute good cause.
Therefore, the District Court convicted the company and the director regarding all unpaid taxes in 2001 as well as 2002.
Supreme Court: explains good cause
The company and its active director appealed to the Supreme Court. The Supreme Court showed no mercy and made a number of comments.
An appeal to the Supreme Court is available in exceptional cases that raise a question of general public importance, which was not the case here. For that reason alone, the Supreme Court rejected the taxpayers‘ appeal. Also, the Supreme Court refused to accept the taxpayers‘ contention that the company‘s woeful state was reasonable cause for paying tax withheld.
The court regards tax withheld as money belonging to the Tax Authority.
Therefore, whoever holds such monies has no right to use them. Criminal prohibitions regarding nonpayment of taxes collected apply even if a person faces economic collapse.
Therefore, the Supreme Court determined that the defense of ‘‘reasonable cause‘‘ and adoption of reasonable or appropriate steps to prevent a crime do not apply even if a delay in handing over taxes is due to severe economic hardship.
How to pay
In case you were wondering, withholding taxes should be remitted monthly to the Tax Authority within 15 days after the end of the month concerned. This is done by paying a check for the tax due at a local bank or Post Office branch, accompanied by Form 102 with your identifying details. The Tax Authority sends each employer a booklet of Form 102s at the beginning of each year. The National Insurance Institute issues employers a separate booklet of Form 102s for national insurance purposes.
As always, consult experienced tax advisers in each country at an early stage in specific cases.
Leon Harris is an international tax specialist.