The Israeli Tax Authority (ITA) recently published a new tax form number 1345 for reporting tax opinions. This follows the enactment of Section 131 Daled of the Income Tax Ordinance last year pursuant to Amendment 215. Consequently, tax opinions given on or after January 1, 2016 may need to be disclosed on the form and attached to your annual tax return. But the actual tax opinion does not need to be submitted at that stage to the ITA. Individuals and companies are covered.
What types of tax opinions are covered ?
The law refers to an “Opinion” as a written opinion, signed by its provider, which is provided directly or indirectly to a person (including a company), which facilitates or makes possible a tax advantage, if one of the following applies: (1) the fee for the Opinion could reach NIS 100,000 or more and is is wholly or partly contingent on the amount of tax advantage generated for the recipient of the Opinion; (2) It is a “shelf opinion”.
A “shelf Opinion” is an Opinion which: (1) includes mainly standard material on a subject, given directly or indirectly by its provider within a two year period to “three or more” who are not related (as defined), where none exercises control (as defined) over any other, which does not depend mainly on the special circumstances (not defined) of the recipient of the Opinion, unless the recipient was not told the Opinion is a shelf opinion, or (2) is offered at the initiative of the provider on condition that the recipient keeps its content confidential, wholly or partly.
What must be reported on Form 1345?
The Form requires the taxpayer to state whether or not the taxpayer acted according to the Opinion, the transaction or asset concerned and the type of tax topic involved – deductions, depreciation, income classification, expense classification, other (in which case it must be specified in the space provided).
What happens if you don’t?
Failure to file a Form 1345 means you didn’t file an annual tax return. Various penalties apply. And an Opinion provider who fails to warn the third recipient onwards of a shelf opinion could wind up in jail for a year.
Who is exempt from this reporting?
A recipient of a shelf opinion is not required to file a Form 1345 if not warned by the provider that is a shelf opinion. The warning does not have to be in writing, which could lead to uncertainty….
A recipient of any Opinion need not report it regarding issues discussed in the course of an assessment, objection or appeal, provided the opinion is provided during those proceedings regarding the tax year concerned.
Form 1345 is also not required from an Israeli charity, nor from an individual or company whose income (excluding capital gains) do not exceed NIS 3 million in the tax year, nor from anyone who derived a capital gain below NIS 1.5 million which is the subject of the Opinion.
The new rules are poorly drafted. Will advice on double tax relief, the Aliya ten year tax holiday or the Angels law be potentially reportable? Why is there no exception for advice regarding Privileged Enterprises and other tax breaks pursuant to the Law for the Encouragement of Capital Investments?
Our guess is that lawyers and accountants will divide into two camps. The first camp will notify nearly all their clients that they have received a reportable opinion, to play safe. The second camp will fill their opinions with paragraphs discussing “your special circumstances” with a view to avoiding reporting.
Time will tell…
As always, consult experienced tax advisors in each country at an early stage in specific cases.
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.