VAT Online Reporting

VAT Online Reporting


The Israel Tax Authority has just made an embarrassing retreat regarding online VAT reporting. It has set the tax world abuzz.
Online detailed reporting

First, let‘s recap. This year companies with revenues over NIS 4 million in 2009 began filing detailed online VAT returns every month. Detailed means just that: listing every purchase and sales invoice and the name and identity number of the suppliers and customers concerned.

This was part of a gradual VAT reform introduced pursuant to Amendment 37 of the VAT Law, which was part of the Economic Efficiency Law (aka budget law) of 2009.

New wave

The ITA felt it was time to embark on a ‘‘second wave.‘‘ So on September 7 it sent a letter to 80,000 businesses, charities with 300 employees and financial institutions telling them they must start filing detailed online VAT returns in January 2011.

According to an ITA announcement that accompanied the letter: ‘‘Businesses that will join the ranks of online filers are those that are required to maintain double-entry accounts [i.e., those that record debit and credit entries for each transaction and will have business revenues exceeding NIS 100,000 in 2010], as well as businesses that maintain single- entry accounts [i.e., simply list transactions once] with annual business revenues over NIS 4 million in 2010. The letters sent are based on estimates and do not exempt the said detailed filers from so filing.‘‘

Was it right?

This jargon was pompous and didn‘t seem right in the case of those who don‘t have to maintain double-entry books under the tax regulations but do so voluntarily or because the company law (as opposed to the tax regulations) requires it. The requirements in the regulations vary sector by sector.

The tax regulations may not require double-entry bookkeeping in instances such as these: manufacturers and wholesalers with annual revenues (in the preceding year) below NIS 9.2m.; retailers with annual revenues below NIS 3.45m. or with less than seven employees; builders with annual revenues under NIS 3.45m.; certain professionals (architects, engineers, lawyers, accountants, etc.) regardless of their annual revenues; land dealers with annual revenues below NIS 10.35m.; real-estate agents with annual commission below NIS 560,000; various other service providers with annual revenues below NIS 1.95m.

Exceptions exist and each business should check its own situation with its accountant.

The Institute of Certified Public Accountants sent a strong protest note to the ITA, in which is said: ‘‘In a conversation with ITA director Yehuda Nasardishy, he agreed that there were errors in the notices sent and that a correction notice would be issued.‘‘

The ITA‘s retort

So what did the ITA actually do? First, it issued a form entitled ‘‘Application to remove a business from the list of those obliged to file detailed VAT returns in 2011.‘‘ So you could apply, but who knows what answer you would get.

Then the ITA tried to change the law to fit in with the letter it sent. It went to the Knesset and proposed an amendment that would oblige anyone who maintains double-entry books to start filing detailed tax returns.

The law triumphs

Finally, on Monday the ITA backed down and issued a somewhat innocuous notice: ‘‘In order to relieve the process of implementation… the ITA has decided to respond to various requests to delay for one year detailed VAT reporting for businesses that maintain single-entry books… if their turnover is less than NIS 4 million in 2010. Consequently, the businesses that will join the circle of detailed filers in January 2011 will be businesses that meet one [or more] of the following criteria: (1) All businesses with business revenues exceeding NIS 4 million in 2010 without regard to the bookkeeping method; (2) All businesses obliged to maintain a double-entry bookkeeping system according to the bookkeeping regulations, without regard to the amount of their business revenues.‘‘

What does it mean?

This latest notice looks confusing, as the ITA was reluctant to admit its error in public. Nevertheless, it seems that businesses that are not required to keep double-entry books for Israeli tax purposes, but do so anyway, can ignore the ITA‘s letter of September 7 if their business revenues in 2010 are below NIS 4m.

If you are one of these, check out the situation. And if your business revenues are projected to straddle the NIS 4m. mark this year, consider whether you can legitimately postpone reporting any revenue transactions until 2011 under generally accepted accounting and tax principles.

As always, consult experienced tax advisors in each country at an early stage in specific cases.
[email protected]
Leon Harris is an international tax specialist at Harris Consulting & Tax Ltd.

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