A new District Court ruling in the case of Avner Nukrai v. The Israel Tax Authority approves the practice of the ITA to impose tax within a Voluntary Disclosure Procedure (“VDP”), on undeclared capital accumulated during tax years with respect to which the statute of limitation period has already expired. This tax is usually referred to as the “tax on capital”.

The claimant claimed that the collection of the “tax on capital” as part of the VDP is unlawful and violates the statute of limitation rules. The Court ruled in favour of the ITA that the rules regarding the  statute of limitation do not apply to taxpayers who have failed to submit tax returns or who knowingly have not disclosed all their income, and that in such circumstances there are no limitations on the ITA’s ability to issue tax assessments, provided that the ITA’s conduct is reasonable and adheres to the principles of administrative law.

In essence, the Court’s decision in this case means that under certain circumstances the ITA is not bound by the statute of limitation rules when imposing tax on unreported income, even if such tax is imposed many years after the unreported income was generated.

It should be noted that the VDP arrangement introduced by the Israel Tax Authority in recent years is in force only until 31 December 2019, and taxpayers for whom this procedure may be relevant are recommended to consider applying for a VDP before the deadline.

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Our firm has extensive experience with hundreds of cases of voluntary disclosure, and would be happy to assist taxpayers for whom this procedure may be relevant.