The Israeli Tax Authority (ITA) is sending out notices to growing businesses requiring them to report online all their purchases and sales for Israeli VAT purposes. This is known as detailed VAT reporting. The aim is to enable the VAT Authority to match up most of the purchases in the economy with most of the sales, and to pounce on discrepancies. This is pursuant to Amendment 44 to the VAT Law published on February 13, 2014. Following is an overview.
Who is affected?
Businesses must begin detailed VAT reporting if their revenues in the 2014 tax year or in 2015 to date exceeded NIS 1.5 million.
When is reporting required?
In principle, the detailed VAT return is required within 15 days after the deadline for filing regular periodic (usually monthly) VAT returns. In practice they are invariable filed together electronically within 15 days after the end of the relevant month.
On the sales/revenue side, detailed VAT returns must disclose regarding each reporting period: every tax invoice issued(by the business; every tax invoice which should have been issued; every customs export document; other documents approved by the VAT Director; and the amounts on each;. On the purchase side, detailed VAT Returns must disclose tax invoices claimed (i.,e. as purchases); customs import documents; other documents approved by the VAT Director; and the amounts on each.
Mode of reporting:
The VAT return must be filed as an electronic document in a format known as PCN 874. Israeli approved accounting programs are able to do so. Foreign accounting programs are not legal in Israel unless approved by the ITA. The filing can be done by the taxpayer at the ITA’s website using a special smart card that identifies the taxpayer. Alternatively, the taxpayer’s accountant or other representative can file the return at the ITA’s online system for professionals known as “Shaam”.
The online reporting is designed to standardize reporting and reduce VAT fraud. Transactions must be entered in chronological order and include fiddly details like identity numbers and dates. Various built validation checks can be annoying, especially if there are clerical errors such as slightly wrong identity numbers. But if this is the price of detecting fictitious invoices and broadening the tax base without raising the VAT rate, so be it.
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.