Your Taxes: 2018 Israeli Tax Amnesty Instructions

The Israeli Tax Authority (ITA) has just published detailed instructions regarding the 2018 voluntary disclosure program (VDP or amnesty) which expand on the ITA’s initial announcement of December 12, 2017 (Operating Instructions 5/2018 of February 13, 2018).  The new instructions will create extra work for amnesty applicants and their advisors.


The 2018 program is stricter than earlier ones. It represents a last chance for taxpayers to sort out any skeletons in the closet before Israel implements in 2018 the OECD’s Common Reporting Standard (CRS). This is an automated information exchange system which makes most banks in the world report foreign account holders and their accounts to most tax authorities in the world, including the ITA. The OECD system complements the US FATCA information exchange system.

Three alternative routes:

First, there is the regular VDP route, available until the end of 2019. Second, there is the fast track route, also available until the end of 2019, for capital under NIS 2 million and income under NIS 0.5 million that are the subject of the fast track VDP. Third, and most popular, is the anonymous route available for applications filed by the end of 2018. The identities need only be revealed if and when the tax and terms are successfully concluded.

Verified records needed:

The relevant records must be apparently be filed electronically. – the Instructions contain a link which currently goes nowhere….If there are boxes of documents, it is unclear if they all have to be scanned and filed. Until now, ITA officials typically only request a sample of the records. Also schedules of income must be filed item by item, rather than year by year. This may not always result in the right amount of tax.

On the regular and anonymous routes, the taxpayer’s advisor (accountant or lawyer) must sign a conformation that the advisor has verified the report on capital and passive income from foreign bank accounts. This amounts to an audit.

The advisor must also confirm that the taxpayer has no other unreported income or assets, and that the data and calculations have been verified with regard to: amount of income, tax thereon, income classification, loss utilization, translation to Shekels.

There is no guidance how to do so or what happens if records are lacking. In practice it can be hard finding old bank and brokerage statements, and financial institutions often only provide them for the last 7 – 10 years.

Wrapping up:

At the end of the negotiations a partial assessment is issued covering just the VDP, not other income. On the regular route, the local tax office and the taxpayer/his advisor sign an agreement.

On the anonymous route a draft VDP agreement is signed which reveals the taxpayer’s identity and the local tax office sends it to the Income Tax Commission (head office) for further review. This is apparently to let the ITA check if the case was already under investigation. If no investigation is under way, the Commission will write saying that no criminal proceedings will be taken and ask for payment of the tax.

If an investigation is already under way, immunity from criminal prosecution is not granted according to the earlier ITA announcement of December 12, 2017 – but material filed may not be used in court in good faith cases involving full taxpayer cooperation and disclosure of information and documents, prompt payment of all amounts due when requested by the ITA,

Time limits:

The Instructions allow 90 -180 days for processing VDP applications on the regular route, 180-270 days on the anonymous route and 15 days to pay the tax if no questions arise on the fast track route. In practice, similar time limits were not exactly observed in the past.

When is tax not imposed on opening capital?

The Instructions say that tax will not be imposed on capital (as opposed to income) in instances where the ITA is satisfied that no tax arises. Such instances may include: income generated abroad when the taxpayer was a foreign resident or in his Aliya ten year “tax holiday”, holocaust compensation, inheritances.

This is only one side of the coin. The Instructions (still) do not say when tax will be imposed on opening capital or how much. see below.


The Instructions allow the ITA to impose “deficiency fines” of 15% of the VDP tax, or even 30% in extreme cases (e.g. artificial or fictitious arrangement), but leniency is possible in certain cases including immateriality, cooperation, good compliance record and age or health grounds. Alternative penalties are possible if an amended tax return is filed but no VDP agreement is reached.


The Instructions point out that deceased persons are assessable on income arising in their last year up to the date of death and the three previous years. (It is unclear how the ITA expect the deceased to come back and request an amnesty….).

Foreign tax credits and losses may only be used in the amnesty period if they arise in the amnesty period, they cannot be used afterwards. Previously that rule only applied to losses.

As for exchange rates, it appears the ITA want all transactions to be translated to Shekels on the actual date they occurred. This is considerably more work than using year-end rates or average annual rates.


These instructions are controversial and raise many issues. Basically, in order to avoid criminal prosecution, the ITA drives a hard bargain.

The period of years to be covered by the VDP is not stated in the instructions. In practice, the ITA usually wants to collect tax on income over the last ten years and on unproven capital at the beginning of those ten years.

The OECD recommends that member countries be pragmatic about incomplete records and to only go back 5 -10 years. The ITA is much stricter and often wants to see bank or brokerage statements throughout the period VDP income and capital was generated, even if that was decades ago, although this is not stated in the Instructions.

Unproven capital tends to be taxed by the ITA at rates ranging from 5% to 50%, although this is not stated in the Instructions. Taxpayers often plead “they need to understand it was years ago”. The ITA replies “We understand but we are not satisfied”. So prepare your paper trail before applying for a VDP.

The verification work now required by the taxpayer’s advisor is extensive. It appears to amount to a 100% audit as well as detective work in case the taxpayer has held back any more income.

Next steps:

Please contact us if you want to discuss any aspect of the ITA 2018 amnesty. We can advise on the alternative routes, paperwork, calculations as well as fines and their mitigation. If requested we then prepare detailed calculations for discussion. If further requested we apply for the amnesty and negotiate with the ITA on behalf of the applicant. To protect the applicant, we generally recommend the anonymous route until things are wrapped up satisfactorily.

The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd

As always, consult experienced tax advisors in each country at an early stage in specific cases.

[email protected]





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