The Israel Tax Authority is escalating its war against unreported capital and fictitious invoices. Sources inform “Globes” that as part of a plan being prepared for the next minister of finance by the Tax Authority, every business owner issuing an invoice for over NIS 5,000 will have to obtain immediate online approval from the Tax Authority when the transaction takes place. Deduction of VAT from an invoice for which approval has not been obtained will not be permitted.
The Tax Authority’s aim is to be present when money is transferred between businesses, and to prevent fictitious invoices. The new requirements will apply to all businesses in Israel. It is estimated that 15% of all the invoices in Israel are for NIS 5,000 or more. The measure constitutes adoption of the Chilean model for combating fictitious invoices, which includes a direct connection between the Tax Authority and businesses in real time in each and every transaction.
The idea of adopting the Chilean model was raised four years ago, when Moshe Asher was director general of the Tax Authority, but was abandoned after failing to receive broad support. Current Tax Authority director general Eran Yaacov is reviving the idea and preparing to put it into effect. A year ago, he appointed a team for combating fictitious invoices, which he and the Tax Authority called a national plague costing the state treasury hundreds of millions of shekels a year.
Leading the team, entitled, “The Committee Responsible for the Invoices Allocation Model in the Tax Authority,” is deputy director Miri Savion. The first proposal discussed was requiring every companies conducting a transaction for over NIS 50,000 being required to contact the Tax Authority VAT office and ask for permission to issue the invoice. According to this proposal, the Tax Authority will consider every invoice sent to it through a secret list of suspicious signs and cross-checking data with various computerized databases, and will approve or reject it. VAT cannot be deducted from rejected invoices.
Months passed, and the committee members meanwhile devised a more revolutionary idea – lowering the threshold to NIS 5,000, instead of NIS 50,000. The model will apply to the entire Israeli economy in order to combat fictitious invoices.
Sources inform “Globes” that the Tax Authority recently contacted producers of software for managing computerized account systems. They issued “preliminary notice” making it clear that they should prepare for the measure being formulated. The notice, entitled, “Preparation for Changes in Bookkeeping Software Resulting from Continued Development of Detailed Reporting and Implementation in Section 47(a) of the Value Added Tax Law,” makes it clear to software owners that if they want to continue providing services to businesses, they will have to comply with the Tax Authority’s new instruction.
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Fictitious invoices: A billion-shekel loophole
The Tax Authority regards the use of fictitious invoices as a nationwide plague. The Tax Authority estimates that this method deprives the state treasury of billions of shekels. According to the Tax Authority, this method is easy to use and difficult to detect.
In this method, the receiver of a fictitious invoice uses it to reduce payments to the Tax Authority through periodic VAT deductions, and by increasing expenses in annual income tax returns.
In recent years, the Tax Authority’s campaign against fictitious invoices resulted in the discovery of professional networks for distributing hundreds of millions of shekels in fictitious invoices. Today, the duty to report to VAT does not extend to all businesses. With someone who does not report online, there is no possibility of crosschecking an invoice between the party receiving the invoice and the party issuing it, which leaves an opening for tax evasion.
The model proposed by the Tax Authority, which includes reporting, checking, and approval of every transaction in excess of NIS 5,000, is designed to reduce the use of fictitious invoices. The model was recently displayed to the Institution of Certified Public Accountants in Israel, the Institute of Tax Advisors in Israel, and the Israel Bar Association, some of whom made substantial objections to it. The Tax Authority plans to meet with Knesset Finance Committee MK Moshe Gafni (United Torah Judaism) in order to promote legislation for implementing the planned measure as soon as a new government is formed.
War on fictitious invoices – How the model will work
Aim: To combat fictitious invoices through online monitoring and crosschecking by the Tax Authority of suspicious signs in new invoices.
Principle: When an invoice is issued for over NIS 5,000, the business owner will be required to report the transaction to the Tax Authority through bookkeeping software or a special website, and obtain permission for it.
To whom the model applies: Only to “business invoices” – transactions between businesses, between a business and financial institution, and between a business and a non-profit organization.
The information to be provided: The date of the transaction, invoice number, business numbers of the party receiving the invoice and the party issuing the invoice, and that amount of the invoice, excluding VAT.
Authentication of the document: An Internet application will be devised that will enable the customer listed in the transaction to verify the particulars of the invoice received from the supplier.
The detailed report: The business and the customer will report the number of the approval. Inconsistency between the number of the approval and the invoice particulars will disqualify the invoice.
Published by Globes, Israel business news – en.globes.co.il – on February 16, 2020
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