Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

The Voluntary Disclosure and

Trust Settlement in Conjunction

with The Israeli Tax Authority

Ascott Hotel - Zurich

February 5th 2014

Hagi Elmekiesse, C.p.a. (Adv.) - Partner

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Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

CPA and Advocate (Israel).

Worked at the Israeli Tax Authority.

One of the founders of the International Tax Unit at

the Israeli Tax Authority, January, 2001.

International Tax Partner at Artzi,Hiba&Elmekiess.

Specializes in international taxation and in

complicated tax settlements with the Israeli Income

Tax Authorities.

Personal background

2

Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Purposes:

Receiving immunity from the Israel Tax Authority

(“ITA”) regarding criminal sanctions

(interrogations, arrests, indictment/criminal fines).

Disclosure of income, assets and funds that were not

reported to the ITA in the past.

Purpose of the “Voluntary

Disclosure” and its conditions

3

Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Conditions:

A truthful application, not resulting from an

investigation or examination conducted by the ITA.

No prior information in possession of the Tax

Authority or any other governmental authority

related to the voluntary Disclosure.

No examination was made in the ITA at the civil

level.

Purpose of the “Voluntary

Disclosure” and its conditions

4

Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Conditions:

Published media information as well as information

included in documents submitted to Israeli courts

are considered as information in the possession of

the ITA.

Removal of the civil infringement (tax payment).

Purpose of the “Voluntary

Disclosure” and its conditions

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Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Two steps when dealing with a potential client:

and analyzing documentsGathering data & : 1Step

the tax exposure.

and the criminal settle to ITAApplying to the :2Step

civil infringement.

Preparation of an application to

a voluntary disclosure

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Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

During this stage there is no contact with the ITA.

Gathering of all the facts to be used as background

when preparing the application,

Explanations regarding the funds’ origin (gift?

Inheritance? Trust distribution? Etc.)

Preparation of supporting documents regarding the

funds’ origin and the funds’ yields.

Step 1: Gathering data & documents

and analyzing the tax exposure

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Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Bank data for each year ends - 31.12.X.

Bank data regarding yields (interest, dividend,

realized capital gain).

Step 1: Gathering data & documents

and analyzing the tax exposure

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Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Analyzing the tax exposure:

Calculating the tax exposures in Israel regarding

incomes accrued in the account.

Evaluating the tax exposure regarding the fund’s

original deposits or the fund’s balance at a specific

date.

Step 1: Gathering data & documents

and analyzing the tax exposure

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Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Settling the criminal infringement :

Written application to the ITA including the case’s background, facts

and details regarding the income amounts not reported.

The ITA examines possession of prior information related to the

Voluntary Disclosure, in the ITA, other governmental authorities,

published media and judiciary documents.

Answering questions / delivering clarifications to the investigating

unit and transferring documents- as requested.

Receiving approval that no criminal prosecution will be

conducted - “Insurance policy”.

Step 2: Applying to the ITA to settle

the criminal and civil

infringements

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Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Step 2: Applying to the ITA to

settle the criminal and civil

infringements

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Settling the civil infringement:

Applying to the civil tax assessing office.

The application is made parallelly or after the

application to a voluntary disclosure is made.

In some cases - possibility to apply anonymously

to the assessing officer before the application to a

voluntary disclosure.

Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Step 2: Applying to the ITA to

settle the criminal and civil

infringements

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Settling the civil infringement:

Negotiating with the ITA regarding tax liability

concerning the fund’s original deposits or the fund’s

balance at a specific date.

When lack of information - risk of higher effective tax

rates on the funds.

At the end of the civil procedure- an agreement with the

ITA is signed, settling the funds and detailing the

total tax to be paid.

Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Trust Settlements – In General

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Application is done on an anonymous basis.

Only a civil process - do not need to submit a request to

the investigating unit of the ITA.

Expertise in the ITA - only two assessing offices are in

charge of trusts.

Settlement procedure – same as voluntary disclosure:

Step 1: Gathering data & documents.

Step 2: Submitting a request to the ITA.

Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Trust Settlements -

Foreign Settlor Trust (“FST”)

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As of 1.1.2014. following the amendment no’ 197 to the Israel

Tax Ordinance.

Our firm participated in the ITA’s “committee for determining

Settlements for Trusts”.

Expected Application to trusts whose settlors are foreign

residents.

Principle - tax levy on the trust’s capital as of the date of

31.12.2013 (and on distributions made in the past years)

Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Tax rates levy in Trust

Settlements

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Base upon our past experience, we believe the ITA shall levy

high tax rates, when the more “problems” with the trust.

Relative Trust with “characteristics” of influence by the

beneficiary

Relative Trust with “characteristics” of influence

by the beneficiary and by the desist settlor

Trust without any family relations

Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Tax rates levy in Trust

Settlements

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Characteristics for the beneficiary’s influence on the trust:

Authority to determine the beneficiary.

The beneficiary can influent the trustee.

Managing the trust’s assets.

Granting services to the trust.

Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Experience With Tax Settlements

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In the past 5 years our firm settled with the ITA, as follows:

About 300 applications regarding voluntary disclosure.

About 30 applications regarding trusts.

Consequences of these applications:

About 90% of the cases were settled with tax levy (on the

asset) ranging from 5% to 18%.

anonymous appointment to our firm are possible.

Art

zi, H

iba

& E

lmek

iess

e

www.ahe-tax .co . i l

Thank you !

You are welcome to visit our website:

www.ahe-tax.co.il

Hagi’s e-mail: hagi@ahe-tax.co.il

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