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GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE

OF INFORMATION FOR TAX PURPOSES


Peer Review Report
Phase 2
Implementation of the Standard
in Practice
Global Forum on Transparency and Exchange of Information
for Tax Purposes
PEER REVIEWS, PHASE 2: ISRAEL
This report contains a Phase 2: Implementation of the Standards in Practice review, as well
as revised version of the Phase 1: Legal and Regulatory Framework review already released
for this country.
The Global Forum on Transparency and Exchange of Information for Tax Purposes is the
multilateral framework within which work in the area of tax transparency and exchange of
information is carried out by over 120 jurisdictions which participate in the work of the
Global Forum on an equal footing.
The Global Forum is charged with in-depth monitoring and peer review of the implementation
of the standards of transparency and exchange of information for tax purposes. These
standards are primarily reected in the 2002 OECD Model Agreement on Exchange of
Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax
Convention on Income and on Capital and its commentary as updated in 2004, which has
been incorporated in the UN Model Tax Convention.
The standards provide for international exchange on request of foreseeably relevant
information for the administration or enforcement of the domestic tax laws of a requesting
party. Fishing expeditions are not authorised, but all foreseeably relevant information must
be provided, including bank information and information held by duciaries, regardless of the
existence of a domestic tax interest or the application of a dual criminality standard.
All members of the Global Forum, as well as jurisdictions identied by the Global Forum as
relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1
reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange
of information, while Phase 2 reviews look at the practical implementation of that framework.
Some Global Forum members are undergoing combined Phase 1 plus Phase 2 reviews.
The ultimate goal is to help jurisdictions to effectively implement the international standards
of transparency and exchange of information for tax purposes.
All review reports are published once approved by the Global Forum and they thus represent
agreed Global Forum reports.
For more information on the work of the Global Forum on Transparency and Exchange of
Information for Tax Purposes, and for copies of the published review reports, please visit
www.oecd.org/tax/transparency and www.eoi-tax.org.
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Consult this publication on line at http://dx.doi.org/10.1787/9789264223059-en.
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ISBN 978-92-64-22296-0
23 2014 40 1 P
Global Forum
on Transparency
and Exchange
of Information for Tax
Purposes Peer Reviews:
Israel 2014
PHASE 2:
IMPLEMENTATION OF THE STANDARD IN PRACTICE
October 2014
(reflecting the legal and regulatory framework
as at August 2014)
This work is published on the responsibility of the Secretary-General of the OECD.
The opinions expressed and arguments employed herein do not necessarily reflect
the official views of the OECD or of the governments of its member countries or
those of the Global Forum on Transparency and Exchange of Information for Tax
Purposes.
This document and any map included herein are without prejudice to the status of
or sovereignty over any territory, to the delimitation of international frontiers and
boundaries and to the name of any territory, city or area.
ISBN 978-92-64-22296-0 (print)
ISBN 978-92-64-22305-9 (PDF)
Series: Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews
ISSN 2219-4681 (print)
ISSN 2219-469X (online)
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli
authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights,
East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
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Please cite this publication as:
OECD (2014), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer
Reviews: Israel 2014: Phase 2: Implementation of the Standard in Practice, OECD Publishing.
http://dx.doi.org/10.1787/9789264223059-en
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
TABLE OF CONTENTS 3
Table of Contents
About the Global Forum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Information and methodology used for the peer review of Israel . . . . . . . . . . . . .11
Overview of Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
General information on legal system and the taxation system . . . . . . . . . . . . . . .14
Recent developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Compliance with the Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
A. Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
A.1 Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
A.2 Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
A.3 Banking information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
B. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
B.1 Competent Authoritys ability to obtain and provide information . . . . . . . . 71
B.2 Notification requirements and rights and safeguards . . . . . . . . . . . . . . . . . . 81
C. Exchanging Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
C.1 Exchange-of-information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
C.2 Exchange-of-information mechanisms with all relevant partners . . . . . . . . 94
C.3 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
C.4 Rights and safeguards of taxpayers and third parties . . . . . . . . . . . . . . . . . . 98
C.5 Timeliness of responses to requests for information. . . . . . . . . . . . . . . . . . . 99
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
4 TABLE OF CONTENTS
Summary of Determinations and Factors Underlying Recommendations. . . . 111
Annex 1: Jurisdictions response to the review report . . . . . . . . . . . . . . . . . . . . 117
Annex 2: List of Israels exchange-of-information mechanisms . . . . . . . . . . . . 118
Annex 3: List of all laws, regulations and other material . . . . . . . . . . . . . . . . 120
Annex 4: People interviewed during the on-site visit . . . . . . . . . . . . . . . . . . . . 122
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
ABOUT THE GLOBAL FORUM 5
About the Global Forum
The Global Forum on Transparency and Exchange of Information for
Tax Purposes is the multilateral framework within which work in the area
of tax transparency and exchange of information is carried out by over
120 jurisdictions, which participate in the Global Forum on an equal footing.
The Global Forum is charged with in-depth monitoring and peer
review of the implementation of the international standards of transpar-
ency and exchange of information for tax purposes. These standards are
primarily reflected in the 2002 OECD Model Agreement on Exchange of
Information on Tax Matters and its commentary, and in Article 26 of the
OECD Model Tax Convention on Income and on Capital and its commen-
tary as updated in 2004. The standards have also been incorporated into
the UN Model Tax Convention.
The standards provide for international exchange on request of fore-
seeably relevant information for the administration or enforcement of the
domestic tax laws of a requesting party. Fishing expeditions are not authorised
but all foreseeably relevant information must be provided, including bank
information and information held by fiduciaries, regardless of the existence
of a domestic tax interest or the application of a dual criminality standard.
All members of the Global Forum, as well as jurisdictions identified by
the Global Forum as relevant to its work, are being reviewed. This process is
undertaken in two phases. Phase 1 reviews assess the quality of a jurisdic-
tions legal and regulatory framework for the exchange of information, while
Phase 2 reviews look at the practical implementation of that framework. Some
Global Forum members are undergoing combined Phase 1 and Phase 2
reviews. The Global Forum has also put in place a process for supplementary
reports to follow-up on recommendations, as well as for the ongoing monitor-
ing of jurisdictions following the conclusion of a review. The ultimate goal is
to help jurisdictions to effectively implement the international standards of
transparency and exchange of information for tax purposes.
All review reports are published once approved by the Global Forum
and they thus represent agreed Global Forum reports.
For more information on the work of the Global Forum on Transparency
and Exchange of Information for Tax Purposes, and for copies of the pub-
lished review reports, please refer to www.oecd.org/tax/transparency and
www.eoi-tax.org.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
EXECUTIVE SUMMARY 7
Executive Summary
1. This report summarises the legal and regulatory framework for
transparency and exchange of information in the State of Israel
1
(hereafter
Israel) as well as the practical implementation of that framework. The inter-
national standard which is set out in the Global Forums Terms of Reference
to Monitor and Review Progress Towards Transparency and Exchange
of Information, is concerned with the availability of relevant information
within a jurisdiction, the competent authoritys ability to gain timely access
to that information, and in turn, whether that information can be effectively
exchanged with its exchange of information partners.
2. Israel is a coastline country in the Middle East region politically
organised as a parliamentary democracy. The Israeli economy is highly
developed technically and mainly based on the service sector and high-tech
technologies. Government expenditure plays an important role in Israeli
economy constituting relatively high share of the GDP.
3. Relevant entities include companies, partnerships, trusts and associa-
tions. Commercial laws and tax laws ensure availability of ownership and
identity information consistent with the standard for all companies, partner-
ships and associations. Nevertheless, companies other than those registered
on the stock exchange may issue bearer shares and insufficient requirements
exist to identify the owners of such bearer shares. However, only 11 out of a
total of 315 096 companies incorporated in Israel are reported to have issued
bearer shares and only three of them are economically active. Ownership
information in respect of foreign companies is ensured mainly by tax report-
ing obligations and income source rules. With regards to trusts, obligations
exist under the tax and trust law that ensure availability of information on
Israeli as well as foreign trusts other than foreign resident trusts and trusts
1. The statistical data for Israel are supplied by and under the responsibility of the
relevant Israeli authorities. The use of such data by the OECD is without preju-
dice to the status of the Golan Heights, East Jerusalem and Israeli settlements in
the West Bank under the terms of international law.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
8 EXECUTIVE SUMMARY
created by new immigrants and veteran returning residents with assets or
income from abroad for a period of 10 years.
4. The legal framework of Israel contains obligations to keep reliable
accounting records and underlying documentation for at least five years
in respect of domestic companies, partnerships and associations. Trustees
are also required to keep records in accordance with trust law. Companies
incorporated in another jurisdiction but managed and controlled in Israel
are required by tax law to have adequate accounting books and underlying
documentation for at least five years. However, a gap in this regard remains
for foreign companies that are managed and controlled by new immigrants
and veteran returning residents. Anti-money laundering laws ensure that all
records pertaining to the identity of account holders and transactions carried
out by banks are consistent with the standard and kept by all banks operating
in Israel. However, the amendment instituting such obligations regardless of
any threshold came into force only recently and Israel is recommended to
monitor availability of this documentation.
5. Enforcement provisions are effectively applied to ensure that infor-
mation relevant for tax purposes is available in practice. Over the period
under review, Israel received 28 requests for ownership information, 40
requests for accounting information and 27 requests for banking information.
44 requests related to other types of information such as information on indi-
viduals, tax residency status or information not related to a specific taxpayer
such as information on general taxation rules or transfer pricing comparables.
The requested information was provided in all cases when the person in pos-
session or control of the information was identifiable and contactable.
6. The Israeli tax administration has broad powers to access relevant
information from any person including banks and from public authorities.
However, there are some limits on these powers in respect of information
relating to new immigrants or returning veterans during a 10 year tax exempt
period and in respect of foreign resident trusts. Further, access to banking
information for civil tax purposes involves an element of proportionality
which limits effective exchange of information. Currently, the Israeli compe-
tent authority does not have powers to give effect to the agreements solely for
the purposes of administrative assistance (e.g. TIEAs). The scope of profes-
sional privilege in Israel is consistent with the international standard.
7. Israel has a considerable network of 54 double tax conventions that
provide for exchange of information in tax matters. The vast majority of these
agreements are in force and to standard. Nevertheless, Israel should continue
its programme of renegotiation of DTCs to incorporate wording in line with
the OECD Model Tax Convention and should ensure that it is able to enter
agreements for exchange of information (regardless of their form) with all
relevant partners.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
EXECUTIVE SUMMARY 9
8. Israel has substantial experience in EOI and it is considered by its
EOI partners as an important partner. Israel received 139 requests over the
period from 1 July 2010 to 30 June 2013. The requested information was pro-
vided within 90 days in 32% of the cases, within a period of between 91 and
180 days in 8% of the cases, within between 181 days and one year in 14% of
the cases and after a year in 9% of the cases. The response has not yet been
provided in 37% of requests received mostly in the latter part of the period
under review. Israels response time might limit effectiveness of exchange of
information.
9. In general, Israel has in place organisational processes to ensure
effective exchange of information. Israels competent authority for EOI
purposes is the International Tax Division of the Israel Tax Authority des-
ignated by the Ministry of Finance. In most cases the requested information
is already at the disposal of the tax administration. Provision of information
is regularly monitored by the EOI Unit manager and contact persons at each
tax office. However, there are certain important areas where improvement is
needed in order to ensure that information or status updates are provided in
a timely manner in all cases.
10. Israel has been assigned a rating
2
for each of the 10 essential ele-
ments as well as an overall rating. The ratings for the essential elements are
based on the analysis in the text of the report, taking into account the Phase 1
determinations and any recommendations made in respect of Israels legal
and regulatory framework and the effectiveness of its exchange of informa-
tion in practice. On this basis, Israel has been assigned the following ratings:
Compliant for elements B.2, C.3 and C.4, Largely Compliant for elements
A.1, A.2, A.3, and C.2; and Partially Compliant for elements B.1, C.1 and C.5.
In view of the ratings for each of the essential elements taken in their entirety,
the overall rating for Israel is Partially Compliant.
11. Recommendations have been made where elements of Israels regu-
latory framework and exchange of information practice need improvement.
Israels follow-up report on progress in these areas should be provided to the
PRG within twelve months after the adoption of this report.
2. This report reflects the legal and regulatory framework as at August 2014. Any
material changes to the circumstances affecting the ratings may be included in
Annex 1 to this report.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
INTRODUCTION 11
Introduction
Information and methodology used for the peer review of Israel
12. The assessment of the legal and regulatory framework of Israel
as well as its practical implementation was based on the international
standards for transparency and exchange of information as described in
the Global Forums Terms of Reference to Monitor and Review Progress
Towards Transparency and Exchange of Information, and was prepared
using the Global Forums Methodology for Peer Reviews and Non-Member
Reviews. The assessment has been conducted in two stages: the Phase 1
review assessed Israels legal and regulatory framework for the exchange of
information as at April 2013, while the Phase 2 review assessed the practi-
cal implementation of this framework during a three year period (July 2010
through June 2013) as well as amendments made to this framework since the
Phase 1 review up to August 2014. The following analysis reflects the inte-
grated Phase 1 and Phase 2 assessments.
13. The assessment was based on the laws, regulations, and exchange
of information mechanisms in force or effect as at 8 August 2014, Israels
answers to the Phase 1 and Phase 2 questionnaires, information provided
during the on-site visit, other materials supplied by Israel, information sup-
plied by partner jurisdictions and information available in the public domain.
During the on-site visit, the assessment team met with officials and repre-
sentatives of relevant Israels government agencies including the Israeli Tax
Authority, Registry of Companies, Bank of Israel and AML Supervisory
Authority (see Annex 4).
14. The Terms of Reference breaks down the standards of transparency
and exchange of information into ten essential elements and 31 enumer-
ated aspects under three broad categories: (A) availability of information;
(B) access to information; and (C) exchange of information. This review
assesses Israels legal and regulatory framework and its application in prac-
tice against these elements and each of the enumerated aspects. In respect
of each essential element, a determination is made that either: (i) the ele-
ment is in place; (ii) the element is in place but certain aspects of the legal
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
12 INTRODUCTION
implementation of the element need improvement; or (iii) the element is not
in place. These determinations are accompanied by recommendations on how
certain aspects of the system could be strengthened. In addition, to reflect the
Phase 2 component, recommendations are made concerning Israels practical
application of each of the essential elements and a rating of either: (i) compli-
ant, (ii) largely compliant, (iii) partially compliant, or (iv) non-compliant is
assigned to each element. As outlined in the Note on Assessment Criteria, an
overall rating is applied to reflect the jurisdictions level of compliance with
the standards. A summary of the findings against those elements is set out at
the end of this report.
15. The Phase 1 and Phase 2 assessments were conducted by assessment
teams comprising expert assessors and representatives of the Global Forum
secretariat. The 2013 Phase 1 assessment was conducted by a team which
consisted of two expert assessors: Ms. Marlene Parker, Director of Legislation
and Treaty Services, Ministry of Finance of Jamaica and Ms. Sarita de Geus,
Senior Tax Policy Advisor, Ministry of Finance of the Netherlands; and rep-
resentatives of the Global Forum Secretariat: Mr. Sanjeev Sharma, Mr. David
Moussali and Mr. Radovan Zidek. The Phase 2 assessment team consisted
of Ms. Lorraine Welch, Deputy Chief Parliamentary Counsel, Attorney-
Generals Chambers, Bermuda and Ms. Melisande Kaaij, Senior Policy
Advisor, Ministry of Finance, the Netherlands and Mr. Radovan Zidek from
the Global Forum Secretariat.
Overview of Israel
16. Israel is a relatively small State located in the Middle East region
with an area of 22 072 sq km and a population of 8.2 million (May 2014
Central Bureau of Statistics estimate), of which roughly 815 300 reside in the
capital city of Jerusalem. Israel lies on the east coastline of the Mediterranean
Sea and borders Lebanon, Syria, Jordan and Egypt. Hebrew and Arabic are
the official languages; however English and Russian are also widely spoken.
The official currency is the New Israeli Shekel (NIS).
17. Israel is a highly developed country with a GDP of NIS 1 053 billion
(EUR 219.3 billion
3
) and GDP per capita of NIS 131 000 (EUR 27 400) in
2013. Sixty-two percent of Net Domestic Product is produced in the service
sector, followed by industry with 20% and agriculture 1.8%. In the year 2011,
the financial services produced 25% of the services sector contribution to the
NDP
4
.
3. As of April 2014: NIS 1 = EUR 0.2.
4. www.cbs.gov.il/shnaton62/st14_02x.pdf.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
INTRODUCTION 13
18. Israel has a technologically advanced market economy. It depends
on imports of crude oil, vehicles, raw materials, and military equipment.
Cut diamonds, high-technology equipment, chemicals and medicine are the
leading exports
5
. In 2012 and 2013 Israel recorded trade surplus amounting
to 1.2% of GDP in 2013. Natural gas fields recently discovered off Israels
coast can lead to a further expansion of Israeli exports in coming years and
decrease its need for energy source imports.
19. The global financial crisis of 2008-09 spurred a brief recession in
Israel, but the country weathered the crisis with solid fundamentals following
years of prudent fiscal policy and a resilient banking sector. The economy has
recovered better than most advanced and comparably sized economies. GDP
grew in 2011 by 4.6 %, in 2012 by 3.4 % and in 2013 by 3.2 %.
6
20. Government expenditures play a significant role in the Israeli
economy. Its share of the GDP peaked at around 70% in the mid-1980s
accompanied by high levels of debt. In recent years the Israeli government
pursued a Stabilisation Programme with an over-arching goal of smaller
government through privatisation, savings in public spending, lower tax
burdens and debt reduction. As a result, expenditures have decreased to
around 40% of GDP in 2013 from 42% of GDP in 2010-11. The government
strongly supports research and development activities. The main research
and development projects are in information, communication, medicine, bio
and nano technologies. Budget deficits peaked in 2001-03. The economic
boom from 2004-08 resulted in rapid growth in tax revenues leading to cuts
to corporate and personal income tax rates. In recent years, with the aim of
having a responsible fiscal policy, the tax cuts were stopped and even par-
tially reversed.
21. The main trading partners of Israel are the United States as a destina-
tion of over 24% of Israeli export (excluding diamonds) and the EU with over
30% (excluding diamonds). With regard to imports, the main trading partner
is the EU (35% excluding diamonds). Other important trading partners
7
are:
China, India, Japan and Brazil.
22. In 2010, Israel formally acceded to the OECD. Israel is also a
member of World Trade Organization, International Monetary Fund and the
United Nations. Israel is a member of the Global Forum on Transparency and
Exchange of Information for Tax Purposes and is committed to implement
the international standards for transparency and exchange of information for
tax purposes.
5. Central Bureau of Statistics press release on 12 June 2014.
6. CIA World Factbook, accessed on 9 April 2014.
7. www.cbs.gov.il/reader/newhodaot/hodaa_template_eng.html?hodaa=201216012.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
14 INTRODUCTION
General information on legal system and the taxation system
Legal system
23. Israel is a parliamentary democratic republic with a multi-party
system. Israels highest legislative body is the 120-seat unicameral Parliament
(Knesset). Knesset members are elected for a four year term based on the
share of total national vote in general elections. The Israeli head of state is
the President, elected by the Knesset for a seven year term. Most executive
power lies with the Government which is accountable to the Knesset. The
Prime Minister, who is the head of government, is appointed by the President
on the basis of the general election results. The Prime Minister is responsible
for proposing a list of ministers, which is submitted within 28 days to the
Knesset for approval.
24. The State of Israel is subdivided into six main administrative districts
(known as mehozot): Center, Haifa, Jerusalem, North, Southern, and Tel Aviv
Districts. Districts are further divided into fifteen sub-districts (known as
nafot), which are themselves partitioned into fifty natural regions. Israels
largest and most populated district is Jerusalem. Districts have a certain
degree of administrative autonomy however; most of the state policies includ-
ing levying taxes are centralised in the hands of the Israeli government.
25. Israels legal system is strongly influenced by the common law tra-
dition. Israel has no formal constitution. Upon attaining statehood, Israel
took over statutes in force during the British mandate, insofar as they were
not opposed to the provisions of the Declaration of the Establishment of the
State of Israel. The main principles of the states power and its functioning
are stipulated in number of Basic Laws. Laws are passed by the Knesset. The
Government (typically ministers) can issue secondary legislation to imple-
ment laws within the limits laid down by the law. In some cases, laws can be
conditioned on the adoption of secondary legislation by approval in a Knesset
committee or require consultation with other ministers. Laws and secondary
legislation come into force on their promulgation.
26. Israels judicial branch consists of three levels of courts: Magistrates
Courts, District Courts and the Supreme Court, which also operates as the
High Court of Justice. Civil tax cases are heard by the District Courts and
indictments are submitted to the Magistrates Courts. The Supreme Court can
overrule a decision of the District Court based on appeal by the taxpayer or
the tax authority. Supervision of the activities of government and other public
institutions is also carried out by the State Comptroller.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
INTRODUCTION 15
Taxation system
27. The Israeli taxation system is mainly based on indirect taxation
of goods and services and income taxes. As of May 2014 there are in total
2.36 million taxpayers registered with the Israel Tax Authority. Out of them
342 813 are companies and 856 trusts. All taxes are administered by the
Israel Tax Authority which is staffed with 5 500 employees and consists of
26 regional offices, 10 regional offices specializing in immovable property
taxes, four regional investigating field offices, a national investigating unit, a
national intelligence unit and three regional law enforcement offices.
28. Total tax revenue as percentage of GDP was 30.3% in 2013,
8
which
is slightly below the average percentage among the OECD members. The
total tax revenue in 2011 was NIS 284 billion (EUR 59 billion), out of which
taxation of goods and services represented 39%, income taxes 30% and social
security contributions 17%.
9
A gradual reduction of tax rates for individuals
and companies has been implemented over the past decade.
29. Income tax is levied according to the Israeli Income Tax Ordinance,
5721-1961 (ITO). The ITO contains rules for corporate income tax, individual
income tax as well as for the administrative aspects of taxation. Based on the
Trachtenberg committee recommendation, ITO amendments were approved
in December 2011, which repealed the earlier reduction in tax rates and set
higher tax rates for tax year 2012 and later.
30. As of 2014, corporations in Israel are subject to a tax rate of 26.5%.
Individuals are subject to progressive personal income tax rates ranging from
11% to 52%. Special rules apply among others with regard to passive source
income, rental fees, persons aged over 60, new immigrants and returning
residents. Personal and corporate income taxes are levied on the worldwide
income of individuals or companies who are Israeli tax residents. Non-
residents are taxed on Israeli-source income. An individual is an Israeli tax
resident if centre of life of that person is located in Israel (s. 1(a) ITO). A
company is considered as Israeli tax resident if it is incorporated in Israel or
it is managed and controlled from Israel
10
(s. 1(b) ITO).
31. Income earned abroad or derived from assets abroad by a new immi-
grant and a veteran returning resident is exempt from taxes for ten years
after the date on which they become resident in Israel. Foreign companies
that are managed and controlled in Israel are not considered resident for tax
purposes for a period of ten years if they are managed and controlled by
8. The Central Bureau of Statistics as of August 2013.
9. OECD (2014), Revenue Statistics 2013, OECD Publishing.
10. Based on the prevailing interpretation, this term should be understood in light of
the analogous notion of place of effective management.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
16 INTRODUCTION
new immigrants or veteran returning residents who have spent at least ten
consecutive years abroad as a foreign resident. Foreign residents are liable
to tax on income generated or derived in Israel, subject to source rules and
the respective double taxation treaties. Permanent establishments of foreign
companies are generally taxed on Israeli-source income only. The Israeli
income tax system includes special rules with regard to foreign professional
companies, controlled foreign companies and foreign occupational compa-
nies enabling Israel to tax foreign source income in Israel under the defined
circumstances. Israel also applies transfer pricing and participation exemp-
tion rules. Capital gains, defined as the excess of proceeds from the sale of
an asset over its depreciated cost, are taxed at the rate of 25% or 30% based
on ownership interest holding with respect to individuals and at the standard
income tax rate of 26.5% with respect to companies. There is no gift tax or
inheritance tax in Israel.
32. Companies are required to inform the tax authorities when they start
operating and must submit annual tax returns. Upon the formation of a com-
pany registered in Israel, the company is required to open a tax file with the
tax authorities and file Form 4436 accompanied by its articles of association.
33. The government levies a 18% value-added tax (VAT) in 2014. The
VAT rate in Israel is uniform for all taxable transactions. However, exported
goods, sale of intangible assets to non-residents, in certain instances sale of
goods to licensed warehouses, certain services rendered to non-residents,
cross border transport services are among others not subject to VAT.
Financial institutions are subject to profit tax instead of VAT at the same rate
as VAT. Generally, anyone who operates any business activity in Israel must
be registered with the local tax administration for VAT purposes. However,
there are exceptions from registration for persons whose main income arise
from certain services (such as lectures, artistic performances etc.), in these
cases the payment obligation transfers to the recipient. There are cases of
exempt dealers, in which the dealer will have to be registered yet will not
be obligated to issue tax invoices. (A VAT exempt dealer is defined as one
having a transaction turnover less than NIS 76 884 (EUR 16 007) per year)
34. Employers and employees are subject to national insurance (social
security) and pension contribution. The employees share of national insur-
ance also includes compulsory health insurance. Employees contribution to
national insurance is applied at rates from 3.5% to 12%, employers rates are
from 3.45% to 6.75%. In both cases the applied rate is based on the amount of
individuals income which is subject to the insurance.
35. The government further levies real estate taxes (acquisition tax
between 0% to 10% for first apartment and 5% to 10% for a second apart-
ment; betterment levy and land betterment levy at 25%; customs duties;
purchase tax and municipal taxes on real estate. The customs duties rates
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
INTRODUCTION 17
vary between 0% to 100% on agriculture products, and between 0% and 12%
on industrial products.
Overview of commercial laws and other relevant factors for
exchange of information
36. Private and public companies are principally governed by the Israeli
Companies Law, 5759-1999. The courts have made a significant contribution
to the development of Israeli law by means of judicial interpretation. In their
decisions, the courts, to some extent, have been influenced by continental
law, although English and American law also has persuasive force. It should
be noted that before the Companies Law came into effect, the normative
framework was based on the Companies Ordinance, 5743-1983, and much of
it has not been repealed upon the coming into effect of the Companies Law,
and remains in force even now.
37. The Companies Registrar is part of the Corporations Authority in
Israel, which is an administrative body reporting to the Ministry of Justice.
The Companies Registrar is in charge of maintaining the Israeli Register of
Companies, in accordance with the requirements of the Companies Law and
regulations.
38. Partnerships are regulated by Israels Partnership Ordinance, 1975.
A partnership can be a general partnership or limited partnership. Trusts
are a type of non-corporate entity and their legal regulation is contained in
the Trust law, 5739-1979. Israels law does not recognise the concept of a
foundation.
39. The main relevant tax rules are stipulated by the Income Tax
Ordinance, 5721-1961 and the Income tax regulation (returns and supple-
mentary returns by body of persons, Regulation No. 5724-1963) prescribe
its detailed application. Tax laws are enforced by state tax authorities that
administratively report to the Ministry of Finance. Accounting obligations
follow from Income Tax Ordinance and corresponding Income Tax Rules,
5733-1973. AML/CFT rules are contained in the Prohibition on Money
Laundering Law, 5760-2000 (PMLL) and the Prohibition on Terror Financing
Law, 2005 (PTFL). Israels AML obligations apply to banking corporations,
members of stock exchange, portfolio managers, currency service provid-
ers, insurers and insurance agents, the postal company and provident funds
(pension business). A number of orders stipulating detailed rules for AML
procedures and obligations have been issued for all of the above mentioned
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
18 INTRODUCTION
entities
11
. The Mutual Evaluation of Israel with regard to its compliance with
the AML/CFT obligations is carried out by MONEYVAL
12
.
40. Israels banking system is small and basically locally owned. In April
2014
13
, the banking system in Israel consists of 16 ordinary banking corpora-
tions, 4 foreign banks, 1 financial institution and 2 joint service companies.
The banking system in Israel is highly concentrated, with five of the largest
banking groups (Bank Hapoalim, Bank Leumi, Discount Bank, Mizrahi
Bank and First International Bank of Israel) controlling 94% of all bank
assets, and the three largest among them accounting for over 72%.
14
Their
total banking assets amounts to about NIS 960 billion (EUR 200 billion) as
of April 2014. A full range of banking services, including private banking,
is offered by the banks. The Bank of Israel (Central Bank) is responsible
for the supervision of the banking corporations. Its Licenses Committee
approves the issuing of licenses to establish or purchase a controlling interest
in a banking corporation, as well as approval for establishing a branch. The
postal bank is owned by the government and has about 650 branches. It is
supervised by the Ministry of Communication.
41. The Tel-Aviv Stock Exchange (TASE) is the only stock exchange
operating in Israel. It is supervised by the Israel Securities Authority and
offers various products for investors, including the trading of shares, corpo-
rate bonds, treasury bills and bonds, index-tracking products and derivatives
on shares, indices and currency exchange rates. It provides clearing, set-
tlement and depository services. TASE is the home market for Israeli
11. These orders are: Prohibition of Money Laundering (Obligations of Stock
Exchange Members to identify, report and retain lists for the purpose of pre-
venting money laundering and financing terrorism), 5770-2010; Prohibition
on Money Laundering (The Banking Corporations Requirement regarding
Identification, Reporting, and Record-Keeping for the Prevention of Money
Laundering and the Financing of Terrorism) Order, 57612001; Order on
Prohibition on Money Laundering (Obligations of Identification, Reporting and
Keeping Records of the Postal Bank to Prevent Money Laundering and Financing
Terrorism), 57712011; Prohibition on Money Laundering Regulations (Rules
for Use of Information Transferred to the Israel Police Force and the General
Security Service for Investigation of Other Offenses and for Transferring it to
Another Authority), 57662006.
12. Third Evaluation Round Report (adopted on 9 July 2008), Second Progress
Report (adopted on 14 December 2011) and Report on Fourth Assessment Visit
(adopted on 12 December 2013) can be seen at the MONEYVAL website: www.
coe.int/t/dghl/monitoring/moneyval/Countries/Israel_en.asp.
13. www.boi.org.il/en/BankingSupervision/BanksAndBranchLocations/Pages/
Default.aspx.
14. Updated January 2014.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
INTRODUCTION 19
companies, however, companies trading in the USA and on the London Stock
Exchange can dual-list their shares on the TASE. As of April 2014, 580 equity
companies are listed on the TASE, out of which 44 companies are cross-listed
abroad.
15
42. Israel administrative co-operation for tax purposes is based on DTCs.
An amendment to the law enabling Israel to join the Multilateral Convention
on Mutual Administrative Assistance in Tax Matters and conclude TIEAs is
under legislative procedure (see below). Israel provides administrative assis-
tance in the form of exchange of information for direct tax purposes. It also
receives information on an automatic basis from several jurisdictions. Israel
is not a member of the Global Forum Working Group on Automatic Exchange
of Information, however, as other members of the OECD, it adopted the
Declaration on Automatic Exchange of Information in Tax Matters during the
OECD Ministerial meeting in May 2014.
Recent developments
43. An amendment to the Income Tax Ordinance enabling Israel to
conclude international agreements solely for the purpose of exchange of
information and clarifying Israels tax authority information gathering
powers in respect of exchange of information is currently under legislative
procedure. The amendment bill (5774-2014) was submitted to the Knesset on
29 January 2014 and passed first reading on 10 February 2014. The bill will
next be discussed by Knesset Committees and upon their approval will be
submitted for second reading by the Knesset.
44. The Israeli government is considering to abolish bearer shares to
address recommendation made in the Phase 1 report. The legal amendment
is currently being drafted by the Ministry of Justice. Once prepared the bill
will be subject to standard legislative procedure.
45. A draft bill concerning the application of AML/CFT obligations on
DNFBPs such as lawyers, that often provide trust services was approved
by the Committee for Legislation and Law Enforcement on 20 November
of 2011. The amendment was approved by the Knesset in first reading on
21 May 2012 and submitted to the Constitution Committee. Since then the
amendment has not yet been discussed mainly because of elections held in
Israel.
46. On 19 May 2013 the Israeli Government has taken a decision to
eliminate the exemption from filing tax returns by new immigrants and vet-
eran returning residents. The legislative proposal is pending discussion by the
15. www.tase.co.il/Eng/MarketData/Stocks/MarketData/Pages/MarketData.aspx.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
20 INTRODUCTION
Knesset. The obligations will apply to new arrivals to Israel from the date the
law comes into force.
47. The Prohibition of Money Laundering Order has been amended to
include the obligation to maintain transactional information in respect of all
transactions carried out by banks irrespective of any threshold. The amend-
ment was passed by the Knesset in February 2014 and came into force on
2 August 2014.
48. The Income Tax Ordinance has been amended to include new types
of trusts for tax purposes. Introduction of the concept of Israeli resident ben-
eficiary trust and of family trust broadens filing obligations of trusts in Israel
and increases availability of information on settlors, trustees and beneficiar-
ies of trusts where at least one beneficiary of a trust is an Israel resident. The
amendment came into force on 1 January 2014.
49. Israel signed an inter-governmental agreement with the United States
to implement FATCA provisions on 30 June 2014. The agreement follows the
Model I IGA which provides for reciprocity between the two partners with
respect to automatic exchange of information.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 21
Compliance with the Standards
A. Availability of Information
Overview
50. Effective exchange of information requires the availability of reliable
information. In particular, it requires information on the identity of owners
and other stakeholders as well as information on the transactions carried out
by entities and other organisational structures. Such information may be kept
for tax, regulatory, commercial or other reasons. If such information is not
kept or the information is not maintained for a reasonable period of time, a
jurisdictions competent authority may not be able to obtain and provide it
when requested. This section of the report describes and assesses Israel legal
and regulatory framework on availability of information and its implementa-
tion in practice.
51. Availability of ownership and identity information in respect of
companies is generally ensured by the requirement to keep an up to date
register of members. However, companies other than those listed on the stock
exchange may issue bearer shares and no sufficient requirements exist to
identify the owners of such shares. As on July 2014 only 11 out of a total of
315 096 companies incorporated in Israel are reported to have issued bearer
shares and only three of them are economically active. Although the materi-
ality of the gap is low and there are mechanisms that allow identification of
the holder of a bearer share, notably reporting obligation for the purpose of
tax on capital gains, a recommendation has been made to address this issue.
Ownership information in respect of foreign companies is ensured mainly by
tax reporting obligations and income source rules.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
22 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
52. Partnerships must be registered with the authorities and details of
each partner must be furnished upon registration. Any change in this respect
must also be registered, ensuring up to date ownership information on part-
nerships. Associations are required to register and keep an up to date register
of its members, and must file a copy of the general meetings and financial
reports with the Registrar of Associations.
53. With regards to trusts, obligations exist under the tax and trust law
that ensure availability of information on Israeli as well as foreign trusts
except in the case of foreign resident trusts having a trustee resident in Israel
and for trusts created by new immigrants and veteran returning residents
which are vested with assets or income from assets abroad.
54. An obligation to keep reliable accounting records including underly-
ing documentation for a period of at least five years is in place in respect of
all relevant entities except for foreign resident trusts and foreign companies
that are controlled and managed by new immigrants and veterans returning
residents. Most of the obligations are based on Israels tax law providing for
retention period of seven years. The requirements to keep underlying docu-
mentation cover a wide spectrum of documentation in respect of transactions
and collections. A general obligation to keep accounting records separate
from the tax law exists for companies, partnerships, associations and trusts.
55. The AML/CFT legislation ensures that all records pertaining to the
identity of the account holders consistent with the standard are kept by all
banks operating in Israel. The AML/CFT laws also require that all transac-
tional documentation on transactions carried out by the bank in the course
of business relationships must be kept regardless of any threshold. The
amendment instituting this obligation came into force in August 2014. Since
the new obligation is untested in practice a recommendation has been made
to monitor the availability of documents attesting all transactions and apply
enforcement measures where such documentation is not kept.
56. Enforcement provisions are in place in respect of the relevant obliga-
tions to maintain ownership and identity information for all relevant entities
and arrangements. Enforcement provisions are effectively applied to ensure
that information relevant for tax purposes is available. If the requested infor-
mation is not already filed and at the disposal of the tax administration the
tax authority enforces its availability by application of administrative and
criminal sanctions.
57. Over the period under review, Israel received 28 requests for owner-
ship information, 40 requests for accounting information and 27 requests for
banking information. The requested information was provided in all cases
where the person in possession or control of the information was identifiable
and contactable (see part C.5). Although some requests have not yet been
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 23
responded to, no peer raised any issue specifically related to the availability
of ownership or accounting information. One peer raised a concern about the
availability of transactional and KYC documentation in respect of banking
information, however, this has not been confirmed in practice and although
seven requests for banking information have not yet been responded to by
banks there was no case during the period under review where the requested
banking information was not provided because the information was not
available.
58. Overall, ownership, accounting and bank information is in practice
generally available in Israel with certain exceptions in respect of ownership
and accounting information where recommendations have been made.
A.1 Ownership and identity information
Jurisdictions should ensure that ownership and identity information for all relevant
entities and arrangements is available to their competent authorities.
Companies (ToR A.1.1)
59. Under the Companies Law 5759-1999 (CL) two types of companies
may be incorporated (s. 1 CL):
Public Companies: these companies have their shares listed for trad-
ing on a stock exchange, or have been offered to the public pursuant
to a prospectus as defined in the Securities Law, and are held by the
public. There are 658 public companies registered in Israel.
Private Companies: these companies are companies that are not
public companies. There are 314 438 private companies registered
in Israel.
60. Any person can establish a company, provided that none of the pur-
poses of the company is illegal, immoral or contrary to public policy (s. 2 CL).
A company can have a single shareholder (s. 3 CL). There are no limitations
on the number of shareholders in either private or public companies. Every
security in a company is presumed to be transferable (s. 293 CL), unless
contrary provisions are set out in the articles of association (s. 294 CL). The
rules described below on the availability of ownership information apply to
all companies, unless indicated otherwise.
61. All companies are required to have a registered office in Israel
(s. 123(a) CL). Any change of address of the registered office must be noti-
fied to the Registrar of Companies (Registrar) within 14 days of the change
(s. 123(b) CL). Non-compliance with these provisions can lead to a fine of
NIS 7 960 (EUR 1 600) (ss. 140(3), 145(2) and 354(a) CL).
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
24 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
Ownership information held by companies
62. All companies incorporated under the CL are required to keep a reg-
ister of shareholders (s. 127 CL). Public companies also need to have a register
of substantial shareholders in addition to the register of shareholders (s. 128
CL). The register of shareholders should contain the following information
(s. 130 CL):
(a) In respect of shares registered under a persons name:
(i) the name, identity number and address of the shareholder;
(ii) the amount of shares and class of shares held by each shareholder,
indicating their nominal value, if any, and if any amount of the
consideration fixed for a share in not yet paid, the amount paid;
(iii) the date of allotment of the shares or the dates of their transfer to
shareholders, as the case may be;
(iv) where the shares are marked with serial numbers, the company
must note next to the name of each shareholder the numbers of
the shares registered in such persons name;
(b) in respect of bearer shares;
(i) an indication of the fact of the allotment of bearer shares, the date
of their allotment and the number of shares allotted;
(ii) the numbering of the bearer share and of the share warrant (a
document stating that the holder there of is the owner of the
bearer share (s. 1 CL));
(c) in respect of dormant shares (own shares purchased by the com-
pany (s. 308 CL)), their number and the date on which they became
dormant.
63. A company is obliged to alter the registration of ownership of shares
in the register of shareholders when a transfer deed of a share is delivered
to the company signed by the transferor and the transferee (s. 299(1) CL). A
company must keep the register of shareholders in its registered office located
in Israel (s. 124 CL). Public companies are also required to keep a register of
substantial shareholders (s. 128 CL). Not keeping a register of shareholders or
not giving notices or reports to the Registrar of Companies as required under
Companies Law or Companies Ordinances is considered a breach of duty
(s. 353 CL). A fine of NIS 7 960 (EUR 1 600) may be imposed on a company
for the aforementioned breach once the Registrar has made a demand to the
company to remedy the breach and the breach is not remedied in a period of
forty-five days (sections 354(a) and 356(a) CL).
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 25
In practice
64. A person becomes a shareholder of a company upon being entered
into the shareholder register. Consequently, a person that is not entered
therein is not a shareholder and cannot exercise its shareholder rights includ-
ing receiving dividends (with the exception of holders of bearer shares).
There is no direct supervision of companies obligation to maintain a reg-
ister of shareholders. However, companies are required to report changes in
their shareholders and an annual report must be submitted to the Registrar
of Companies, which includes details of all shareholders of the company.
If information on all shareholders of the company is not available to the
company the company will not be able to submit the required information
to the registrar. The Enforcement and Inspection department in the Israel
Corporation Authority is responsible for supervision of companies filing
obligations and payments of annual fees. If a company does not file the
requested information it is declared as company in breach and respective
sanctions apply (see next section and section A.1.6).
Ownership information held by the authorities
65. A person seeking to register a company must submit an application
to the Registrar in the form prescribed by the Minister of Justice, to which
must be attached: (a) a copy of the articles of association; and (b) a declara-
tion by the first directors that they are willing to serves as directors (s. 8 CL).
The Registrar will give every company a registration number and shall enter
it on the certificate of incorporation (s. 10 (b) CL). The articles of associa-
tion must contain the registered share capital of the company, including the
number of each class (s. 18 CL). The articles of association of a company must
be signed by the first shareholders and the shares allotted to them must be
noted therein, as shall be the name, address and identity number of each such
shareholder (s. 23(a) CL).
66. Private companies must report annually to the Registrar: (a) the
alterations in the articles of association, and increase or decrease of capital;
(b) the change of address of its registered office; (c) a notification to the effect
of stating that the company has no auditor; (d) appointments to the board of
directors and changes in its composition; (e) the allotment of shares; (f) the
transfer of shares; and (g) a merger it will enter into (s. 140 CL). A report on
the transfer of shares made to the Registrar must be made within 14 days and
must include identity information on the old and new shareholders (s. 299(1)).
As the articles of association of a private company include details on the ini-
tial shareholders, updated information should be available with the Registrar.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
26 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
67. Public companies must report certain information to the Registrar as
well, but this does not include ownership information (s. 142 CL). However,
ownership information is available through the register of shareholders (s. 127).
68. Non-compliance with yearly reporting by companies can lead to a
fine of NIS 7 960 (EUR 1 600) (s. 354(a) CL).
In practice
69. A company obtains its legal status only upon registration with the
Registrar of Companies (s. 6 CL). The date of registration is contained in the
certificate of incorporation which is issued by the Registrar of Companies
upon registration. The certificate of incorporation includes name of the com-
pany, its registered address and a company registration number (of 9 digits).
Without a certificate of incorporation it is not possible for the company to
open a bank account, communicate with government authorities or partici-
pate in public tenders.
70. The Registrar of Companies forms part of the Israel Corporation
Authority. Israel Corporation Authority further comprises the Registrar of
Partnerships, the Registrar of Public Trusts, the Registrar of Associations,
the Registrar of Pledges and the Registrar of Political Parties. Each registrar
forms its own department within the Israel Corporation Authority and is sub-
ordinated to one of the two Deputy Heads of the Israel Corporation Authority.
Israel Corporation Authority has in total 213 employees dealing with about
374 000 registered entities.
71. Each registered company must inform the Registrar of changes in the
information provided upon registration. This includes reporting on change in
directors or allotment of shares and in case of private companies reporting
on transfer of shares. In addition, each company is required to submit to the
Registrar of Companies an annual report which includes companys name,
official address, date of holding of the annual meeting, the distribution of the
share capital, identification of directors and in respect of private companies
also identification of shareholders and identification of a share held by each
shareholder. Each company is also required to pay annual fee of NIS 1 500
(EUR 300).
72. Documents provided by the company to the Registrar are cross
checked with information already contained there and with identity infor-
mation in the Registry of Citizens. If the submitted form does not contain
the required information or the information is incorrect the submission is
declined and the person is required to remedy the deficiency. All provided
documents are scanned and entered in the companys folder which is publicly
available on-line. Information contained in the companies registry has only
declaratory value; authorisation by the Registrars official is required for
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 27
its use in tax proceedings. The tax administration has direct access to the
Registrars database and information contained in the Registrars database
is each day automatically uploaded into the tax database. There is no limita-
tion on period for which information provided to the Registrar is kept by the
Registrar. All provided information is archived and also kept after liquidation
of the company.
73. The Enforcement and Inspection Department in the Israel Corporation
Authority is responsible for the supervision of companies filing obligations
and payments of annual fees. While the department does not carry out any
on-site inspections the provided information is checked and verified upon
entry into the registry. Failure to file an annual return in time (or at all) or
to pay annual fees is automatically detected by the registry database. The
company is then informed in a letter about its obligation and if the failure is
not remedied within the prescribed deadline the company is declared to be
in breach of law. As of May 2014, in total 98 926 companies (31% of all com-
panies) are declared in breach of law. In addition, 33 665 companies already
settled their breach fully and 27 536 partially. If a company does not settle
its breach fully (i.e. does not provide all required information for respec-
tive years or does not pay outstanding fees) it continues to be considered
as a company in breach. The number of submitted annual returns has risen
significantly over the last five years from 32 278 in 2008 to 120 435 in 2013.
Nevertheless, only about 36% of all companies are filing annual returns in
time. Out of the 315 096 registered companies about 170 000 are economi-
cally inactive or dormant (54%), however, even these companies are required
to file their annual returns.
74. The Israel Corporation Authority is currently taking active steps to
raise compliance with the filing obligations. The internal organisation of the
authority has been changed, new additional staff hired and the Enforcement
and Inspection Department was founded. The Registrar has also started to
declare a company to be in breach of law in all cases where a company is
not compliant with its obligations. In January 2015 a new regulation will
come into force which provides for the application of administrative fines
in all cases when company fails to submit the required information or pay
the annual fee. By the end of 2014 all registration and obligatory filing with
the Registrar will be conducted on line allowing better detection of non-
compliance. In the same year on-line Register of pledges for bank creditors
should be put in place.
75. The level of compliance with filing obligations to the Registrar is low
and does not currently ensure that ownership information is available with
the Israel Corporation Authority in all cases. Accordingly, the main source
of ownership information for tax purposes (including exchange of infor-
mation) are tax obligations and information contained in the tax database.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
28 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
Companies not filing their returns in time are declared in breach of law and
administrative sanctions apply (including inability to receive a loan or open
a new bank account). Nevertheless, Israel is encouraged to continue taking
steps to improve the availability of ownership information with the Registrar
including ensuring that financial sanctions are applied in respect of all com-
panies which fail to comply with their obligations to the Israel Corporation
Authority (see further section A.1.6).
Tax law
76. The Income Tax Ordinance (ITO) establishes that residents in Israel
are obliged to pay income tax on their worldwide income for each tax year
(s. 2 ITO). The ITO defines a company as a company incorporated or regis-
tered under any law in effect in Israel or elsewhere, including a co-operative
society (s. 1 ITO). Companies are resident in Israel for tax purposes if they
are incorporated in Israel or when they are managed and controlled in Israel
(s. 1(b) ITO).
77. The ITO determines that companies are required to register no later
than they start to operate (s. 134 ITO). Upon the formation of a company
registered in Israel, the company is required to open a tax file with the Israel
Tax Authority by filing Form 4436 titled Opening Corporation Tax File
with the Israel Tax Authority accompanied by the articles of association
in accordance with the tax authorities powers to demand the submission of
returns (s. 135 ITO). Form 4436 must include the details of the directors and
shareholders of the company such as: name and registration number, address,
assessing office, type and amount of shares, holding percentage of shares by
the shareholders and whether the shareholder is a director of the company.
78. Companies are required to file an annual tax return (s. 131(a)(5)). The
Minister of Finance may, by regulations, prescribe additional returns for a
company obliged to file an income tax return (s. 131A ITO). Companies must
also file an annual report in Form 1214 reporting its current shareholders.
This ensures availability of information on current shareholders annually.
Non-filing of these returns attracts sanctions under the ITO (see section A.1.6
below).
79. The ITO obliges all persons
16
to notify the assessing officer about the
beginning or change of occupation in time. The defaults of failure to inform
the assessing officer of this fact in time and non submission of their first
annual tax return after the event are liable to three years of imprisonment or
to a fine of NIS 75 300 (EUR 15 060) and to another fine of half the tax to
which it was liable (s. 215A(a) ITO).
16. A person includes a company and a body of persons (s. 1 ITO).
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 29
In practice
80. Compliance with tax reporting obligations is monitored and super-
vised by the Israel Tax Authority. The aggregate compliance of companies,
partnerships and trusts with tax return filing obligation (including filing
of annual reports) is 96% over the period under review. The tax database
automatically identifies companies which fail to register with the tax admin-
istration or fail to submit their returns in time. The tax database is connected
to the Registrar of Companies and indicates if a company fails to register
with the tax administration. If the registration or tax return is not filed within
the statutory deadline, the tax office issues a notice informing the taxpayer
of his/her obligation, and if the information is not submitted, sanction under
s. 188 and s. 216 of ITO applies (see section A.1.6). About 4% of corporate
taxpayers are audited per year on a risk based approach. The programme of
tax audits includes on-site and off-site inspections. Part of on-site inspec-
tions is verification whether the company maintains shareholder register.
Information obtained during tax inspections is kept in the respective tax-
payers file.
81. All numerical information contained in a tax return is checked for
completeness and accuracy before the information contained is entered into
the tax database. Further scrutiny of the provided information is carried out
by the assessing officer conducting the tax assessment and investigation
officers of the Intelligence department. The provided information is also
automatically crosschecked with information already contained in the tax
database.
82. The tax database (SHAAM) contains a vast amount of informa-
tion, including information on shareholders, registered addresses, directors,
ownerships structures or business transactions. The database is updated with
all new information filed with the tax administration or obtained during tax
audits. The database is linked to databases of other government authorities
such as the registry of real estate, the registry of cars, the registry of ships
and planes, the immigration office, the social security authority, and the
labour office or trade licence office. The database also includes information
from public sources such as from government tenders or relevant informa-
tion from public internet such as companies reports from annual meetings or
information on specific transactions or contracts. The tax database operates a
data mining programme automatically searching for tax relevant information.
83. The tax administration uses several IT tools to retrieve ownership
information from the database. The most frequently used tool for EOI pur-
poses is the data mining application allowing officials to search for defined
sets of information through all modules of the database including identity or
ownership information. Entities are identified based on one or more criteria
such as name, TIN, business identification number, registered address or,
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30 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
in the case of individuals, the name and date of birth or passport number
(if the name is not unique). The system allows searches for specified links
between data contained in the database based for example on names of direc-
tors or members of statutory bodies or allows for verification of suspicious
transactions.
84. There is no statutory limit on the time the information can be kept in
the tax database. In practice, the information is not deleted and all historical
data on taxpayers are kept.
Ownership information held by service providers
85. Under the Israeli legal framework AML/CFT obligations apply to
banking corporations, members of stock exchange, portfolio managers, cur-
rency service providers, insurers and insurance agents, the postal company
and provident funds. Section 2(a) of the Prohibition of Money Laundering
(The Banking Corporations Requirement regarding Identification, Reporting,
and Record-Keeping for the Prevention of Money Laundering and the
Financing of Terrorism) Order (PMLO) of 2001 determines that a banking
corporation shall not open an account without recording the following iden-
tification particulars in respect of each of the account holders or authorised
signatories, and in respect of any other person applying to open an account,
and authenticating them as set forth in section 3 of the PMLO: (i) name;
(ii) identification number; (iii) date of birth for an individual or date of incor-
poration for a company; and (iv) address.
86. Further, the Prohibition on Money Laundering Law (PMLL) deter-
mines that a banking corporation and any other financial institution to whom
these legal provisions apply shall not perform a property transaction unless it
possesses the identifying particulars as specified in the PMLO, of the person
receiving the service from the banking corporation (s. 7(a)(1), (7)(b) PMLL).
The Governor of the Bank of Israel or the relevant Minister are empowered
to determine by order who is a recipient of a service of a property transaction
performed by a banking corporation; this determination may include a ben-
eficiary of the transaction, and, in addition, where the act is performed at the
request of a corporation or by means of a corporate account, it may include
the person in control of the corporation (s. 7(a)(1),(7)(b) PMLL).
87. In the case of companies which open an account or realise a property
transaction through a banking corporation or other financial institution,
there is an obligation to record: (a) the names of the controlling shareholders
and their identity numbers; (b) if the banking corporation does not process
such an identity number, after having taken reasonable measures to obtain
one, it may instead record the date of incorporation; and (c) the country of
citizenship (s. 2 PMLO and 7(a)(1)(a) PMLL). Failure to carry out CDD or to
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COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 31
maintain the documentation for at least five years can lead to an administra-
tive fine of no more than NIS 2 226 000 (EUR 445 200) (s. 14(a) PMLL). The
term controlling shareholder is derived from the Securities Law, 5278-1968
and as per the interpretation of the Security Authority controlling shareholder
means information on the last individual in the chain of control.
In practice
88. AML obligations are supervised by four authorities responsible for dif-
ferent types of service providers. These supervisory authorities are the Bank of
Israel, the Ministry of Communication, the Israeli Securities Authority and the
Ministry of Finance. The Bank of Israel (Banking Supervision Department) is
responsible for AML/CFT regulation and supervision of banking corporations
in Israel. The Banking Supervision Department supervises the banking corpo-
rations compliance with AML/CFT requirements and assesses the quality of
the banking corporations risk management through its Institutional Evaluation
Division (off-site inspections) and its Inspection Division (on-site inspections).
The Banking Supervision Department is in contact with compliance officers of
banking corporations through an inspection programme and through provid-
ing guidance and answers to specific queries regarding the implementation of
the AML/CFT rules. As of April 2014 the Bank of Israel supervises 20 banks
including five major banking groups (see further section A.3).
89. The Ministry of Communication operates as the AML/CFT supervi-
sor of the Postal Bank. The Ministry issues regulatory instructions, performs
inspections to verify the Postal Banks compliance with obligations pre-
scribed by laws, regulations and Postal Banks license requirements and takes
enforcement measures where deficiencies are identified. During 2010-13 the
Ministry performed one on-site inspection in each year. It also carried out
three off-site inspections in 2010, four in 2011 and three 2012. No violations
of AML/CFT rules were identified during these inspections.
90. The Israeli Securities Authority is the supervisory authority in
respect of stock exchange members and portfolio managers. The Israeli
Securities Authority provides advice to the supervised entities on legal issues
or specific cases, publishes its positions on issues that require clarifica-
tion, conducts on-site and off-site inspections and applies sanctions. As of
31 December 2012, there were 132 portfolio managers, 13 non-bank Stock
Exchange members and 15 Stock Exchange members that are banks, thus
supervised by the Bank of Israel. The Israeli Securities Authority performed
four on-site inspections in 2010, three in 2011 and eight in 2012. Based on its
supervisory activities it identified four violations of AML/CFT rules in 2010,
two in 2011 and five in 2012. The total amount of sanctions imposed was
EUR 52 800 in 2010, EUR 30 000 in 2011 and EUR 82 500 in 2012.
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32 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
91. The Ministry of Finance (Insurance and Savings Division) is
responsible for the supervision of insurance agents and provident funds.
Supervision of currency services providers is carried out by the Registrar of
Currency Services Providers which is part of the Ministry of Finance. The
Ministrys supervisory measures include licensing reviews and inspections,
setting regulatory guidelines on implementation of AML/CFT obligations
and performance of enforcement audits including on-site inspections of CDD
documentation and transaction records. As of 31 December 2012, the Ministry
of Finance supervised 23 insurance companies, 65 provident funds and 1 931
currency services providers. The Ministry conducted 14 on-site inspections in
2010, 38 in 2011 and 33 on-site inspections in 2012. It conducted four off-site
inspections in 2010, six in 2011 and nine in 2012. It identified 13 violations
of AML/CFT rules in 2010, 36 in 2011 and 29 in 2012. The amount of fines
applied was EUR 451 266 in 2010, EUR 500 600 in 2011 and EUR 454 800
in 2012.
92. The level of compliance with record keeping requirements has signif-
icantly improved in the last three years. Most deficiencies identified related
to currency service providers. None of the supervisory authorities reported
significant issues in respect of maintaining KYC documentation. Although
information kept by service providers is rarely the source of ownership infor-
mation in exchange of information practice, Israels AML/CFT supervisory
authorities are effectively implementing measures to ensure that information
required to be maintained under AML/CFT rules is available in practice.
Foreign companies
93. Foreign companies are considered to be resident for tax purposes
in Israel if they are managed and controlled from Israel (s. 1(b)(2) ITO), and
are therefore subject to income tax in respect of their worldwide income (s. 2
ITO). Foreign companies are obliged to submit an annual tax return under
section 131(a)(5) of the ITO if they are resident in Israel for tax purposes. The
Minister of Finance may, by regulations, prescribe additional returns which a
company is required to make which shall be attached to the income tax return
(s. 131A ITO). Foreign companies which are resident in Israel for tax purposes
must register with the Israel Tax Authority using form 4436 and attach to
their annual income tax returns Form 1214. Both forms contain information
on foreign companys shareholders including holding percentage of shares.
Foreign companies resident in Israel are also subject to the same penalties as
domestic resident companies (see above). A total of 2 625 foreign companies
are registered in the register of Israel Corporation Authority in July 2014.
94. From 2007, foreign companies that are managed and controlled in
Israel are not considered resident for tax purposes for a period of ten years
if they are managed and controlled by new immigrants or veteran returning
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COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 33
residents who have spent at least ten consecutive years abroad as a foreign
resident (s. 1(b)(2) ITO). However, having a place of management or head-
quarters in Israel will trigger registration and filing requirements for the
foreign company due to income source rules (s. 4A ITO). A foreign company
having a place of management or headquarters in Israel generates taxable
income there. Part of the profit of the company must be attributed to the man-
agement activities conducted in Israel and this profit will be considered to be
from a source in Israel. Consequently, the company is required to register and
file tax returns using the same forms containing information on sharehold-
ers of the company as Israel tax resident company (s. 131(a)(5) ITO). This is
confirmed by a ruling of the Israel Tax Authority from 3 July 2012. The Israel
Tax Authority ruled that an Israeli investment portfolio managers home
office created a permanent establishment in Israel for the foreign company
for whom she worked although the company provided no actual financial
services in Israel, all its clients were located outside Israel, and the company
did not market to Israeli clients. The company was required to register and
submit income tax return in respect of income generated in Israel through the
permanent establishment. As of July 2014 there are 3 348 foreign companies
registered in Israel for tax purposes.
95. A foreign company which keeps a place of business in Israel, includ-
ing an office for the transfer of shares or for the registration of shares, must
also be registered as a foreign company with the Registrar of Companies
(s. 346(a) CL). The application for registration has to be submitted to the
Registrar within one month of setting up a place of business and it must
attach the following documents: (a) a copy of the documents under which
the company is incorporated or pursuant to which it operates, including its
articles of association; (b) a list of the directors of the company; (c) the name
and address of an authorised person in Israel to receive service of process;
and (d) a certified copy of a power of attorney for an authorised agent who
is resident in Israel (s. 346(b) CL). The Registrar should be notified within
fourteen days if an alteration occurs in a document, a change of the directors
of the company, or a change in the name or address of the authorised agent or
of the person designated for service of process (s. 346(c) CL).
96. Section 349 of the CL states that foreign companies which have a
place of business in Israel and do not register with the Registrar as well as
any office holder thereof who is party to such breach, shall be subject to a
fine of NIS 26 100 (EUR 5 220) and in the case of an ongoing breach, they
shall be subject to a further fine of NIS 1 300 (EUR 260) for every day on
which the breach continues, from the date that the foreign company receives a
notice from the Registrar. These sanctions were not applied in practice during
the period under review.
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34 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
97. In practice, registration of foreign companies with the Registrar
and with the tax administration is carried out in the same way as in case
of domestic companies. Information provided to the tax administration is
scanned and checked for being full and accurate. The tax administration uses
several measures to verify the provided information. The aggregate compli-
ance rate which covers also foreign companies is 96% over the reviewed
period. Companies that do not file their returns in time are automatically
detected by the tax database and reminded of their obligation. If they do not
fulfil their obligations sanctions are applied (see section A.1.6).
98. Based on the above, foreign companies which are resident in Israel
for tax purposes due to the fact that they are managed and controlled in
Israel or which generate income sourced in Israel must maintain information
about their shareholders in order to meet their tax obligations, i.e. registering
with the tax administration and filing proper income tax returns indicating
their current shareholders. This has been confirmed in practice. During the
period under review Israel received 10 requests for ownership information in
respect of foreign companies. The requested information was provided in all
cases except for one request related to foreign company controlled by a new
immigrant where the foreign company did not derive any income in Israel as
it was not managed there.
Nominees
99. Section 131 of the Company Law provides that a shareholder who is
a trustee must be registered on the register of shareholders, with a reference
to the trusteeship, and such a person is considered as a shareholder for the
purpose of the Company Law. Section 176 of the Company Law establishes
that a person in whose name the shares are registered in a private company
is the shareholder of the company. Therefore, nominee shareholder is treated
as a legal owner of shares in case of a private company. Israeli authorities
have advised that nominee shareholders are treated as trustees in Israel and
provisions of the Trust Law 5739-1979 of 1980 apply in the matter and trus-
tees must hold information on the persons on whose behalf they hold shares.
Israel has further clarified that the definition of trustee and trust under the
Income Tax Ordinance is very broad and refers to any kind of relationship
in which one person hold assets on behalf of another person no matter how
that relationship is classified under Israeli or any other law. Therefore, nomi-
nee shareholders are treated as trustees under the provisions of the ITO too.
The provisions concerning trusts in Israel are discussed further below in the
report.
100. The provisions with regard to ownership of the shares held by a
nominee in a public company are different. When a companys shares are
listed for trading on a stock exchange in Israel, a nominee company may
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be entered on the register of shareholders, in addition to the information as
required in section 130 (a)(1) (s. 132 CL). Section 130 (a)(1) requires informa-
tion on the name, identity number and address of the shareholder. Further, the
nominee company is not considered as a shareholder in the company and the
shares entered under its name are considered owned by a person for whose
benefit such shares are registered (ss. 132 and 177). Therefore, in case of a
company whose shares are listed on stock exchange and shares are held by a
nominee, the information on nominee as well as the person on whose behalf
such shares are held by such a nominee must be available in the register of
shareholders. Although in practice the register of shareholders is not directly
inspected by the Registrar of Companies, companies are required to have this
information available to comply with their tax filing obligations and obliga-
tions to their shareholders as the ownership in a company is constituted by
entry into the register of shareholders (with exception of bearer shares).
Conclusion
101. All companies are required to keep a register of shareholders. A
person is considered a shareholder of the company upon being entered into
the shareholder register. Public companies also need to keep a register of sub-
stantial shareholders in addition to the register of shareholders. In addition,
the Registrar of Companies keeps a register of all companies and the infor-
mation available includes ownership information for private companies. The
Israeli tax authorities also maintain ownership information on all companies
that are resident for tax purposes in Israel (including companies formed in
Israel and foreign companies that are managed and controlled in Israel), since
these companies are required to update shareholder information each year
when they file their tax return. There are no impediments for a person to act
as a nominee shareholder for another person and the availability of informa-
tion on the nominees as well as the persons on whose behalf they hold shares
is ensured in Israel.
102. In practice, ownership information in respect of companies is avail-
able on the basis of tax law obligations. The requested information is obtained
from the tax database or directly from the person concerned if the informa-
tion contained in the tax database is not sufficient. Israel was requested to
provide ownership information in respect of companies in 20 cases over the
period under review. In all cases the requested information was available
if the holder of the information was identifiable and contactable in Israel.
Although three peers indicated issues related to requests for ownership infor-
mation these issues were not caused by the fact that the requested information
was not available but related to cases where the holder of the information was
not identifiable and contactable in Israel or to issues related to the processing
of requests (see section C.5.2).
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36 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
Bearer shares (ToR A.1.2)
103. The CL establishes that it is possible for companies to issue bearer
shares. A bearer share can be issued only after payment of full consideration
to the company. A person holding a share warrant is also a shareholder of the
company (s. 11, CL). A bearer share is a negotiable instrument, the transfer of
which is effected by delivery of a share warrant to the purchaser (s. 297 CL).
The holding of a share warrant is considered prima facie evidence of own-
ership of a bearer share (s. 296(b) CL). Thus, the rights of the bearer shares
that are held by the company are executed through the share warrants that
represent the bearer shares. Share warrants that represent bearer shares may
be returned to the company that issued bearer shares for the purpose of their
cancellation and conversion into shares registered under the shareholders
name (s. 136 CL). According to the Israel Corporation Authority there are
11 companies that issued bearer shares. Out of them only three are economi-
cally active (0.001% of all companies).
104. As stated previously, a company is required to keep a register of
shareholders (s. 127 CL). The following must be entered in the register of
shareholders in respect of bearer shares: (a) an indication of the fact of the
allotment of bearer shares, the date of their allotment and the number of
shares allotted; and (b) the numbering of the bearer share and of the share
warrant that represents it (s. 130(a)(2) CL). The CL requires that companies
submit identification details of all founding members at the time of incorpo-
ration. Section 135 of the Companies Law provides that, when a share warrant
is issued in place of a share registered under a persons name, the share must
be registered, as set out in section 130(a)(2) discussed above, and the name of
the shareholder must be removed from the register of shareholders.
105. A company may lay down provisions in its articles of association
limiting the transferability of shares, under conditions prescribed in the arti-
cles of association. This situation may preclude any company who has such
a prohibition in its articles of association to have bearer shares (s. 294 CL).
106. Section 66 of the Corporate Guidance Note issued by the Tel Aviv
Stock exchange, as updated on 25 January 2010, prescribes conditions for the
registration of companies with the stock exchange. These conditions among
other include:
all stocks generated in the original capital of the company shall be
considered stocks that were fully paid;
all stocks generated in the original capital of a new company shall be
listed in the companys stockholders register; and
new stock that will be issued in a quoted company shall also be listed
in the companys stock holders register.
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COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 37
107. Israeli authorities have confirmed that issuing securities and offering
the option to sell them to public require a formal approval from the Minister
of Finance or his authorised representative. They have further confirmed
that there are at present no listed bearer shares in Israel Stock Market, and no
bearer shares are being traded. In view of the specific requirements that for
seeking a registration of securities with the Stock Exchange such securities
must be listed in the companys stock register ensures that a public company
registered on the stock exchange is not allowed to have its shares in bearer
form. It is clear that no public company of which shares are in bearer form
can register with the Stock Exchange and accordingly no such company is
registered there.
108. Private companies are required to file an annual report to the
Registrar of Companies. In this annual report the companies must provide
information on the capital of the company; authorised and allotted capital;
and types and numbers of shares issued. In respect of registered shares, infor-
mation on the identification of shareholders must also be provided. In respect
of bearer shares information on the number of warrants issued and number of
shares in each warrant is required to be stated but information on the identity
of holders is not required.
109. Any transfer of a share warrant to bearer must be reported to the
Israeli Tax Authorities as well as information on the identity of the trans-
feree. The transfer of a share (including bearer share or a share warrant to
bearer) of an Israeli company is subject to tax as capital gain (s. 89(a) ITO).
Consequently, the seller is required to file a return within 30 days after the
sale (s. 91(d)(1) ITO). The return must be made on form 1399, which includes
information on the number of transferred shares, identification of the buyer
and seller (including their names, tax numbers and addresses), selling price
and date of the sale. Based on the information contained in the return appro-
priate tax rate is applied. The return has to be filed regardless of whether a
capital gain or loss was realised (91(d)(1) ITO). Persons who are not Israeli
tax residents are exempt from tax on profits from the sale of shares traded
on the Tel Aviv Stock Exchange and gains from the sale of shares of Israeli
companies traded on stock exchanges overseas. Foreign residents are also
exempted from (i) sale of shares of Israeli company declared Research and
Development Intensive Company by the Ministry of Industry and (ii) sale
of shares in Israeli company acquired after 1 January 2009 with exceptions
for companies whose assets primarily consist of real estate, shares were
purchased from a related party, shares were held through a permanent estab-
lishment in Israel or which are controlled by Israeli residents (s. 97 ITO).
Nevertheless the form 1399 has to be filed even if the income is exempted
from tax. In practice, there were about 26 500 forms 1399 submitted to the
tax administration in 2011 and about 24 000 in 2012. Figures for the taxable
year 2013 are not yet available. Compliance with the obligation to declare a
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38 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
transfer of shares is considered high by Israel authorities based on relation
between the number of filed reports and the number of share transactions
carried out on the stock exchange or reported by companies in their annual
returns.
110. Furthermore, the holder of a bearer share must provide certain infor-
mation to the company in order to effectively exercise shareholder rights.
The company must identify its owners upon distribution of dividends which
are subject to different tax rates depending on specific conditions of the
recipient. The company needs to be able to sufficiently evidence the recipient
of the payment and the tax regime applicable to the dividends. Finally, the
shareholder needs to identify himself/herself or his/her proxy to the company
in order to exercise voting rights during general annual meetings (s. 83 CL).
111. According to the Israel Corporation Authority 11 companies out of
315 096 companies incorporated in Israel (0.003% of all companies) have
issued bearer shares. As of March 2014 five of these companies were liq-
uidated or are in the process of being liquidated and one company is not
active. Two companies converted bearer shares into registered shares and the
remaining three companies are economically active (0.001% of all compa-
nies). Based on this information, the authorities report that the use of bearer
shares in Israel is negligible. There has been no case where the requested
information related to a company which issued bearer shares. There are sev-
eral reasons contributing to this fact. In addition to requirements mentioned
above,
a company cannot issue bearer shares upon its incorporation unless
provided for in the Articles of Association and identification of all
initial shareholders has to be submitted to the Registrar. In order to
issue bearer shares the company needs to report any allotment of
shares (including bearer shares) to the Registrar within fourteen days
of an allotment (s. 292 CL).
Banks are required under AML/CFT rules to identify the owner-
ship structure of their clients including all legal owners and the last
individual in the ownership chain. If a company is not able to pro-
vide identification of its owners banks are not allowed to establish a
business relationship with that client (or are required to terminate an
existing relationship) and should report such case to IMPA.
Public companies registered on the stock exchange are not allowed
to have bearer shares.
Companies have to report ownership information to the tax admin-
istration upon its registration (form 4436) and annually (form 1214).
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112. Consequently, there are mechanisms in place to identify holders of
bearer shares in many circumstances. Moreover, only three active companies
have issued bearer shares in practice. However, there is no mechanism robust
enough to ensure availability of information on the owners of bearer shares
issued by companies which are not listed on the stock exchange in all cases,
therefore, it is recommended that Israel establishes suitable legal mechanisms
that ensure availability of information on owners of bearer shares in all cir-
cumstances. Israel is already addressing this issue and the draft of a legal
amendment abolishing bearer shares is currently being considered by the
government.
Partnerships (ToR A.1.3)
113. Partnerships are governed by the Partnership Ordinance (PO).
A partnership is defined as a body of persons engaged in a partnership
relationship (s. 1(a) PO). A partnership relationship is defined as the rela-
tionship between persons managing a business together for the production
of profits, excluding the relationship between members of a corporation
incorporated under any law (s. 1(a) PO). Three types of partnerships can be
distinguished:
General partnership: a partnership where all of the partners are liable
for the obligations of the partnership, jointly and severally (s. 1(a)
PO). There are 4 557 general partnerships registered in Israel.
Limited partnership: a partnership where a person who brought capi-
tal into the partnership, at the time of the engagement, in money or
in an asset valued at an express amount, in order to not be liable for
the obligations of the partnership in excess of the amount provided;
however, the partnership must include at least one general partner
(s. 1(a) PO). There are 2 931 limited partnerships registered in Israel.
Foreign partnership: A partnership established outside of Israel (s. 74
PO). There are 229 foreign partnerships registered in Israel.
114. General and limited partnerships must be registered within one
month from the date of formation (s. 4 PO). A limited partnership cannot
commence business activities unless it has received registration approval
from the Registrar of Partnerships (s. 61 PO). If a partnership does not reg-
ister as required by law, then each of its partners is liable to a fine of NIS 15
(EUR 3) for each day on which the offense continues; however, non-registra-
tion of a partnership shall not affect the consideration of whether or not the
partnership exists (s. 6 PO).
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40 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
115. Section 7 of the PO establishes that the registration of a general or
limited partnership shall be effected by sending a notice to the Registrar,
signed by the partners, which must include the following details:
(a) the name of the partnership;
(b) the general nature of the business;
(c) the main place of business;
(d) the full name, address and description of each partner (including
limited partners);
(e) the names of the partners who are authorised to manage the affairs
of the partnership and to sign in its name, unless all of them are so
authorised; and
(f) the period determined for the existence of the partnership, if such a
period has been determined, and the date of commencement thereof.
116. If any of the registration details is changed, a notice, signed by all
the partners, in which such change shall be specified, must be sent to the
Registrar within seven days (s. 9 PO). The registration requirement and the
obligation to submit any change ensure the availability of ownership infor-
mation in respect of all partnerships formed under Israeli law with Israeli
authorities. Any person failing to submit a notice to the Registrar of a change
in any of the details of registration, is liable to a fine of NIS 15 (EUR 3) for
each day on which the offence continues (s. 9 PO).
117. A foreign partnership shall not conduct any business in Israel unless
it has been registered in Israel (s. 75 PO). In addition, if it is a limited partner-
ship it must obtain registration approval from the Ministry of Justice (s. 75
PO). A foreign partnership doing business in Israel that fails to register with
the Registrar or the Ministry of Justice is liable to a penalty of NIS 3.75
(EUR 0.75) per day of violation.
118. Section 76 of the PO establishes that the registration of a foreign
general partnership or a foreign limited partnership shall be by delivery of a
notice to the Registrar, signed by all the partners and including the following
details:
(a) the name of the partnership;
(b) the nature of the business;
(c) the full name, address, description and citizenship of each of its
partners;
(d) the names of the partners authorised to conduct the partnerships
business and to sign on its behalf, unless all are authorised;
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COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 41
(e) the term of existence of the partnership, if such was determined, and
the date of commencement thereof;
(f) the name and address of the Israeli citizen authorised to receive legal
documents and notifications on behalf of the partnership; and
(g) regarding a limited partnership, also a notice that the partnership is a
limited one, and the details of each limited partner, the sum inserted
by him and if paid in cash or any other way, and if paid in full.
119. In the case of changes in the registration details of a foreign part-
nership, a notice, signed by all the partners, in which such change shall be
specified, must be sent to the Registrar within fourteen days (s. 78 PO). The
registration requirement and the obligation to submit any change ensure
the availability of ownership information in respect of all foreign partner-
ships doing business in Israel. Any person failing to submit a notice to the
Registrar of a change in any of the details of registration is liable to a fine of
NIS 15 for each day on which the offence continues (s. 78 PO).
120. The registration of partnerships is carried out by the Registrar of
Partnerships, which is part of the Israel Corporation Authority. Registration
of general, limited and foreign partnerships is organised in the same way as
for companies. There is no difference in registration procedures for general
or limited partnerships. Information on all general or limited partners is
provided upon registration and kept updated. The information is publicly
available through the Registrar. As detailed above, partnerships registration
is not legally constitutive. However, changes in partners of a partnership do
not have legal effect unless entered into the register of partnerships and pub-
lished by the Registrar (s. 48 PO). Registered partnerships generally obtain
a certificate of incorporation. The certificate is required by banks, govern-
ment authorities and some private entities (such as real estate agents) before
they establish a business relationship with the partnership. Therefore if the
partnership cannot provide the certificate it cannot open a bank account and
its business activities are restricted. Notifications submitted to the registrar
are checked and information provided by a person unauthorised to do so is
refused. As in case of companies, partnerships compliance rate with filing
obligations is rather low and does not ensure that updated information on all
partners in a partnership is available with the Registrar in all cases. The Israel
Corporation Authority is already taking active steps to significantly raise
compliance from 2015 (see section A.1.6). It is noted that information on part-
ners in a partnership is in practice available in Israel based on tax obligations.
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42 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
Tax law
121. Under the Income Tax Ordinance two or more persons carrying
on business or vocation jointly are taxed as partnerships. These tax provi-
sions equally apply to foreign partnerships carrying on business in Israel.
Partnerships are considered transparent for tax purposes, which mean that
the partners are taxed separately for their share in the partnerships income
(s. 63(a)(1) ITO). Nonetheless, partnerships are obliged to register with the
tax authorities no later than on the date they start operating by filing Form
4436 (s. 134 ITO) and one of the partners resident in Israel of the partnership
at the request of the assessing officer must make and deliver a return of the
partnerships income for every year (s. 63(2) ITO). The return must contain
the names and addresses of the other partners together with the amount of the
share of the income to which each partner was entitled (s. 63(2) ITO). Where
there is no partner resident in Israel, the return must be filed by a representa-
tive (e.g. attorney) of the partnership who is resident in Israel upon the request
of the tax authorities (s. 63(2) ITO). This means that where a partnership
return has been submitted, full ownership information for the relevant year
is available with the tax authorities.
122. In practice, compliance with tax reporting obligations is monitored
and supervised by the Israel Tax Authority. The tax registration of partner-
ships and their monitoring follow the same procedures as for companies (see
section A.1.1). The identity of all partners of general or limited partnerships is
entered into the tax database upon registration of the partnership and is kept
updated through tax returns. The aggregate compliance of companies, part-
nerships and trusts with the tax return filing obligation is 96% over the period
under review. The tax database automatically identifies partnerships which
fail to register with the tax administration or fail to submit their returns in
time. If the registration or tax return is not filed within the statutory deadline
the tax office issues a notice informing the taxpayer of his/her obligation and
if the information is not submitted sanctions under s. 188 and s. 216 of ITO
apply (see section A.1.6).
Conclusion
123. All partnerships organised in Israel or carrying on a business in
Israel must be registered and upon registration details of all partners must
be submitted to the Registrar of Partnerships and to the Israel Tax Authority.
Further, all partnerships carrying out business in Israel are required to file
annual tax returns which contain the names and addresses of all partners.
Any changes in the information provided to the Registrar of Partnerships
must be notified within 7 days in the case of domestic partnerships and
14 days in the case of foreign partnerships. Although compliance rate with
partnerships filing obligations to the Registrar does not ensure that the
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COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 43
updated ownership information is available in all cases such information
is available to the competent authority based on tax law obligations. If the
requested information is not already at the disposal of the tax administration
the tax authority enforces its availability by the application of administrative
and criminal sanctions and by use of enforcement measures including search
and seizure. Further, over the period under review Israel received one request
for ownership information regarding a partnership and the requested infor-
mation was provided. Accordingly, no issue was indicated by peers. Updated
ownership information on partnerships is therefore available in Israel in line
with the standard.
Trusts (ToR A.1.4)
124. The legal basis for trusts is found in the Trust Law 5739-1979 of 1980
(TL). Trusts are not a separate legal entity. A trust is defined as a relationship
to any property by virtue of which a trustee is bound to hold the property, or
act in respect thereof, in the interest of a beneficiary or for some other pur-
pose (s. 1 TL). Israeli law does not require that trust property be owned by the
trustee. The trustee must exercise control over assets to fulfil the purpose of
the trust, but there are no particular conditions as to the manner of control.
Where the trust property includes property that must be registered (such as
real estate), the trustee may notify his/her relationship with the property to
the Registrar of Lands, and such person shall register the appropriate anno-
tation on the deed of the property (s. 4 TL). Trusts created under Israeli law
terminate on the death of the settlor, because the Israeli succession rules
override the rules of trusts. There is a need for probate of the will in order
to achieve a settlors goal of creating a trust that will exist for a number of
generations. Trustees of a trust must keep account books in respect of the
affairs of the trust (s. 7 TL). The trustee must report to the beneficiaries on
the affairs of the trust, annually and upon termination of his/her tenure, and
to provide them with any other additional information that they may reason-
ably request (s. 7 TL).
125. The Trust Law regulates the establishment of private trusts and
public purpose trusts. Public trusts are similar to charitable trusts. There
are 3 027 public trusts registered with the Israel Corporation Authority as of
May 2014.
126. Under the definition of a trust in section 1 of the TL, private trusts
are relationships to any property and may take a wide variety of forms
according to the wishes of the parties. The commencement of a trust occurs
on the date when the trustee is granted sufficient control of the property for
carrying out his functions. A trust can be created by law or through a con-
tract with a trustee or by a trust instrument (s. 2 TL). There is no general legal
requirement that a trust arrangement must be evidenced in writing. However,
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44 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
Section 17 of the Trust Law provides for the creation of an endowment trust
by means of a written instrument of endowment in which the settlor of the
trust expresses his/her intentions to create a trust and determines its objects,
property and conditions. In an endowment, the property is transferred for the
benefit of a beneficiary or for any other purpose. The trust document can be
in one of the following forms:
(a) an instrument signed by the settlor of the trust, before a notary;
(b) a will of the settlor of the trust, other than an oral will; and
(c) an order to make a payment under section 147 of the Succession
Law, 5725-1965.
127. If the trust is intended to be executed during the life of the settlor, it
must be signed before a notary (s. 17(1) TL). The signing of a document before
a notary requires that the person appears before the notary and is identified
(Art. 12 Notaries Law 5732-1972). Notaries are licensed in Israel and must
not exercise their powers in respect of a document that is not duly stamped
(Art. 18 Notaries Law). A notary must also retain a copy of the document in
respect of which he or she acts and send it to the central archive for notarial
documents at the time prescribed in regulations (Arts. 19, 31 Notaries Law).
If it is intended to be executed after the death of the settlor, it must be set
out as a testament (s. 17(2) TL) or in the form of a payment order according
to section 147 of the Succession Law. Where any property is de facto a pri-
vate trust but no instrument of trust exists in respect thereof, the court may
declare the existence of a trust and may determine its objects, property con-
ditions and the date of commencement (s. 17 TL). Public trusts, of which one
of the purposes is to advance public interest, must register with the Registrar
of Endowments and also furnish an annual report (s. 26 TL). The Registrar
of Trusts keeps a computerised registry of trusts which is open to public
subject to the limitations of privacy protection. These trusts are also obliged
to furnish annual financial statements to the Registrar. Information on the
founders, the trust conditions and trustees of public trusts is available with
the Registrar. Private trusts including endowments are not obliged to register
with the Registrar.
128. In practice, registration of public trusts is carried out by the Registrar
of Trusts in a similar way as the registration of companies or partnerships.
The Registrar of Trusts forms an organisational part of the Israel Corporation
Authority. The Registrar approves registration of public trusts, any changes in
information provided and analyses annual reports including financial state-
ments provided by trusts. If a public trust does not file an annual return, or if
the provided information is incomplete or false or it is found during inspec-
tion or based on third party complaint that the trust is not administered in line
with its trust deed the trust will not receive a Certificate of Proper Conduct.
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COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 45
A public trust without the certificate is not considered as charitable entity and
does not qualify for tax favourable regime. The certificate is also required
in order to receive government subsidy or to supply services to government.
Further, if the trust is not administered in accordance with the trust deed,
proceedings against the trustee can be taken by the Registrar or any other
person at the District Court and the Registrar of Trusts is always party to
these proceedings. In addition, every will that is submitted for the approval
of the court is also provided to the General Custodian. If the will contains
instructions regarding the establishment of a public trust, the General
Custodian submits it to the Registrar of Trusts for registration.
129. It is conceivable that a trust could be created which has no connec-
tion with Israel other than that the settlor chooses the trust to be governed by
Israeli law. In that event, there may be no information about the trust avail-
able in Israel. In these situations, trust information would have to be available
in the jurisdiction where the trustee is located as the relevant records would
be situated there.
Foreign Trusts
130. Foreign trusts are not addressed in the Trust Law, so identity infor-
mation in relation to foreign trusts that have a nexus to Israel would not be
available under the provisions of the Trust Law. Israeli law does not prohibit
a resident from acting as a trustee or trust administrator for a foreign trust.
Israel is not a Party to the Hague Convention on the Law Applicable to Trusts.
However, information in respect of such trusts is ensured, with some excep-
tions, due to the provisions of Israelis Income Tax Ordinance discussed below.
Tax Obligations
131. The Income Tax Ordinance prescribes comprehensive rules with
regard to taxation and reporting requirements for trusts governed under
Israeli law or foreign law. These rules came into effect on 1 January 2006,
however, reporting obligations have been in force since 31 August 2008.
Under the taxation rules, it is immaterial that trustees are resident in Israel or
not or assets are located within or out of Israel. The ITO classifies trusts into
following categories for taxation purposes:
Israeli resident trusts (s. 75G): at the time of creation at least one sett-
lor and at least one beneficiary were Israeli residents, and in the tax
year at least one settlor and at least one beneficiary are residents in
Israel; further a trust that is not created by foreign residents and is not
a foreign resident beneficiary trust is regarded as an Israeli resident
trust. The assets and income of an Israeli resident trust are considered
as assets and income of the settlor(s). This trust is taxable in Israel.
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46 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
Foreign resident trusts (s. 75I): a trust where in the tax year all the
settlors and beneficiaries are foreign residents; and there were no
Israeli resident beneficiaries since the date of creation. This trust is
exempt from tax in Israel. The assets held by trustee are deemed as
owned by the settlor personally.
132. Israeli resident beneficiary trusts (s. 75H1): a trust where from the
date of its creation and until the tax year all the settlors thereof are foreign
residents and during the tax year it comprises at least one beneficiary who
is an Israel resident. The trustees income shall be deemed to be the income
of an Israel resident individual and the trust assets as the assets of an Israel
resident individual. The provisions applying to an Israel resident trust apply
to an Israel resident beneficiary trust.
Family trusts (s. 75H1): a family trust is an Israel resident beneficiary
trust where there is a family relationship
17
between all the Israeli
beneficiaries to all the foreign settlors. The trust is liable to tax in
Israel on its worldwide income. The tax on income produced or
accrued outside of Israel is taxed upon distribution from the trustee
to an Israeli resident beneficiary or in the tax year in which it was
produced or accrued as income of an Israeli resident.
Foreign resident beneficiary trusts (s. 75J): a trust settled by an Israeli
resident in favour of non-Israeli beneficiaries. These trusts are not
subject to tax in Israel subject to certain conditions including that all
beneficiaries are non-Israeli residents and their identity is known.
Assets and income of the trust are deemed to be the assets and
income of the beneficiaries.
Testamentary trust (s. 75L); a trust created under a Will and where all
the settlors of the trust are Testators who were residents in Israel at
the time of their demise. Assets and income are deemed to belong to
the beneficiaries and taxability depends on their residence. A trustee-
ship created by a Will, in which at least one of the beneficiaries is a
resident of Israel, is considered as an Israeli resident trust and provi-
sions of Section 75 G apply.
Tax returns
133. Section 131 (a) (5b) of the ITO provides for the filing of tax returns in
respect of a trusteeship. A trustee is obliged to file a tax return of an Israeli
resident trust, an Israeli resident beneficiary trust or a family trust (Form
1327: annual return of a trustee of trusteeship) to the assessing officer of
17. Family relationship is established where the settlor is a parent, a grandparent, a
spouse, a child or a grandchild of the beneficiary (s. 75H1(b)).
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COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 47
the trust. A trustee must also file a tax return of any trust that has income
or assets in Israel. A beneficiary or a settlor who elects to be assessable and
chargeable to the trust income must also file a tax return of the trust. A trus-
tee of a foreign resident beneficiary trust is required to file a tax return only
if the trust has income or assets in Israel. A testamentary trust which has no
Israel resident beneficiary is not compulsorily required to file a return and
provisions of a foreign resident beneficiary trusteeship apply.
134. The tax return of a trust must contain, among other things, particu-
lars of all settlors, trustees, protectors and beneficiaries and the residential
status of each (s. 131 ITO)). These details are required to be submitted in
Form 151 H, as an annexure to the annual tax return. Trusts are given a trust
file number by the assessing (tax) officer in Israel. Any change in the type
of trust or the termination of the trust is also notified through Form 151H.
If the reporting trustee is a foreign resident then a mailing address in Israel
must be provided. In the case of a foreign resident trust or a foreign resident
beneficiary trust, Form 151H must be filed to provide details of vesting and
distributions of assets and income in Israel, however, such a form is only
required to be filed if these trusts have assets or income in Israel.
135. Section 75 O (e) provides exemption from filing of tax returns under
section 131 in respect of income created or accrued abroad by a trustee-
ship created by foreign residents or by a foreign resident beneficiary trusts
or by a trusteeship created under a will in which there is no Israel resident
beneficiary. This exemption from filing tax returns to trustees including an
Israeli resident applies in respect of foreign sourced income earned by these
trusts even if they file tax return about income produced or accrued in Israel.
Section 75P (c) provides that, the fact that a trustee is an Israeli resident does
not create a tax liability or an obligation to submit a return in respect of trust
income, in addition to the obligations specified in the ITO, such as would not
exist if all the trustees were foreign residents.
Reporting obligations
136. Section 75 P1 of the ITO obliges an Israeli resident settlor to give
a notice in Form 147 within 90 days of the creation of a trust or contribu-
tion of assets to a trust to the assessing officer of the trust and a copy to
the tax officer where the settlors tax file is maintained. The form contains
details like name of trust; date of creation of trust; details of each of the trust
protectors, trustees, beneficiaries, settlors and contributions to the trust.
Information on individuals includes name, identifying number and country of
residence. An individuals identifying number is associated with information
that identifies the person. However, this obligation does not apply to an Israeli
resident settlor who became an Israeli resident for the first time or a veteran
returning resident for a period of 10 years from the date on which he/she
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48 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
became an Israeli resident on the condition that only assets abroad or income
from assets abroad are vested in such a trusteeship (s. 75P1(a1)). Section 75 P
2 obliges a settlor to file Form 147 if a trust is converted to an Israeli Resident
Trust, Israeli Resident Beneficiary Trust, Family Trust or a Foreign Resident
Beneficiary Trust.
137. Pursuant to Section 75 P 2 (a), a notice in Form 147 must be submit-
ted within 90 days of the creation of a trusteeship under a will (Testamentary
Trust). Form 147 is also filed by a trustee in case of a change in the category
of trusteeship, the conclusion of a trusteeship of Israeli resident or the conclu-
sion of a trusteeship that at its conclusion held assets in Israel.
138. Section 75 P 3 of the ITO obligates an Israel resident beneficiary to a
give a notice in Form 149 of distributions received in moneys worth in a tax
year to the assessing officer of the trust. Such a notice must be given even if
the distribution is not liable to tax in Israel. The notice must contain informa-
tion on the trust, settlors and description of the assets distributed.
139. Pursuant to Section 75 J (f) of the ITO, a reporting trustee is required
to submit Form 143 as an appendix to annual tax return of a Foreign Resident
Beneficiary Trust. Form 143 must also be submitted by April 30
th
of the year
following the tax year, if an annual tax return is not required be filed. This
Form requires providing information such as name of trust, date of creation,
trust file number, identity information on the reporting trustee and all trust
protectors, settlors, beneficiaries, trustees and distributions. Change in type
of trust and termination of trust must also be intimated by this notice. This
Form is also submitted as an attachment to Form 147 by the trust settlor as a
onetime notice (s. 75 J (a) (4) (b)).
140. A declaration of an irrevocable trusteeship (Form 141) is filed as an
appendix to the annual return of trust.
In practice
141. In practice, compliance with tax reporting obligations is monitored
and supervised by the Israel Tax Authority in the same way as in case of
companies (see section A.1.1). The aggregate compliance with the tax return
filing obligation of companies, partnerships and trusts is 96% over the period
under review. All returns including attachments are checked for completeness
and accuracy before information contained is entered into the tax database.
Further scrutiny of the provided information is carried out by the assess-
ing officer conducting the tax assessment and investigation officers of the
Intelligence department. The provided information is also automatically
crosschecked with information already contained in the tax database. The
tax database automatically identifies trusts which fail to register or submit
their returns in time. If the registration or tax return is not filed within the
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COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 49
statutory deadline the tax office issues a notice informing the taxpayer of his/
her obligation and if the information is not submitted sanctions under s. 188
and s. 216 of ITO apply (see section A.1.6).
Conclusion
142. Tax return filing requirements apply to the Israeli resident trusts,
Israeli resident beneficiary trust, family trust and all types of trusts that have
income or assets in Israel. Information on the settlors, trustees and beneficiaries
must also be filed in a separate form attached to the tax return. Tax reporting
requirements apply to all beneficiaries and settlors resident in Israel except for
new immigrants and veteran returning residents. Further, a reporting trustee of
a foreign resident beneficiary trust must submit information on the trust, even
if no tax return is required to be submitted. There is no tax filing or reporting
requirements in case of foreign resident trusts that have no assets or income in
Israel. The tax law exempts the Israeli settlor of trusts who are new immigrants
or veteran returning residents from reporting obligations for the first ten years
if such a trust has no income or assets in Israel. Therefore, it is recommended
that Israel sufficiently ensure the availability of identity information in respect
of the settlors, trustees and beneficiaries of the foreign resident trusts and for
trusts created by the new immigrants and veteran returning residents which are
vested with assets or income from assets abroad.
143. Legal obligations to maintain ownership information in respect of
trusts under tax laws are properly implemented in practice to ensure that
information on settlors, trustees and beneficiaries of domestic trusts and
trusts administered in Israel is available. However, the legal gap in respect
of foreign resident trusts and trusts created by the new immigrants and vet-
eran returning residents may cause that the requested information may not
be available in all cases where there is no legal obligation to maintain such
information. Over the period under review Israel received one request for
information regarding trusts and the requested information was provided. No
peer indicated an issue in this respect.
Foundations (ToR A.1.5)
144. The Israeli legal and regulatory framework does not provide for the
establishment of foundations.
Other relevant entities and arrangements
145. Under the Associations Law (AL), associations can be established.
An association is defined as an entity created by two or more persons who
wish to incorporate as a body corporate for a lawful purpose not aimed at
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50 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
the distribution of profits to its members (s. 1 AL). There are 36 753 associa-
tions registered in Israel. Associations are mostly used for establishment of
hospitals, universities, theatres, sport clubs or small religious communities.
An application for registration of an association must be submitted by the
founders to the Registrar of Associations, indicating: (i) the name, (ii) objects
and (iii) address in Israel of the association and (iv) the names, (v) address and
(vi) identity numbers of the founders (s. 2 AL). An association must also keep
a register of members in which every member must be registered indicating
his address, identity number, date of commencement and date of termination
of his membership (s. 18 AL). In addition, an association must keep a register
of board members in which the name, address, identity number, date of com-
mencement and termination of service of each member (s. 29 AL).
146. There are several mechanisms to ensure that information on mem-
bers of an association is available in practice. The Registrar of Associations
monitors filing obligations and applies sanctions when an association fails
to file the required information (see section A.1.6). The Registrar conducts
regular on-site inspections during which obligations to maintain a register
of members and provide accurate information to the Registrar are checked.
There are about 300 on-site inspections carried out by the Registrar per
year and about another 100 third party complaints are checked. Further,
associations are required to provide the Certificate of Proper Conduct in
several situations including when receiving tax deductible gifts or govern-
ment support. If the association does not file an annual return, the provided
information is incomplete or false or it is found during on-site inspection that
the association does not comply with its obligations its Certificate of Proper
Conduct is cancelled. Most associations acting in Israel need to have the
Certificate of Proper Conduct for their activity.
147. Information on members of associations is also available at Guidestar
website which is a central database of non-profit organisations.
18
The website
is open to the public and for free. The website contains among others up-to-
date information on the status of associations, their Certificates of Proper
Conduct, financial reports and information on directors and managers.
Enforcement provisions to ensure availability of information
(ToR A.1.6)
148. Jurisdictions should have in place effective enforcement provisions
to ensure the availability of ownership and identity information, one pos-
sibility among others being sufficiently strong compulsory powers to access
the information. This subsection of the report assesses whether the provi-
sions requiring the availability of information with the public authorities or
18. www.guidestar.org.il/.
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within the entities reviewed in section A.1 are enforceable and failures are
punishable.
149. Companies must keep a register of shareholders in their registered
office located in Israel. Public companies are also required to keep a register
of substantial shareholders. Not keeping a register of shareholders or not
giving notices or reports to the Registrar is considered a breach of duty. A
fine of NIS 7 960 (EUR 1 600) shall be imposed on a company for the afore-
mentioned breach once the Registrar has made a demand to the company to
remedy the breach and the breach is not remedied in a period of forty-five
days (ss. 354(a) and 356(a) CL). Private companies are obliged to annually
report to the Registrar information on certain matters including the allotment
of shares and transfer of shares (s. 140 CL). A new amendment to the Israeli
Companies Law came into effect on 1 January 2010. This amendment allows
the Companies Registrar to declare that a company which does not comply
with the regulations concerning the payment of an annual fee and submitting
an annual report to the Registrar of Companies is a company in breach, and
as a consequence, several sanctions are imposed on that company, including
refusal to register charges on the companys assets or charges in favour of it,
refusal to register a new company to a controlling member of a company in
breach and refusal to register a companys change of name.
150. If a company does not file its annual return with the Registrar in
time, or if the return is incomplete or does not pay the annual fee the com-
pany is declared as company in breach of law. During the period under
review the Enforcement and Inspection department of the Israel Corporation
Authority declared 77 079 companies as being in breach of their obliga-
tions. As of May 2014 the number of companies declared in breach of law
totals 98 926 (31% of all companies). In addition, 33 665 companies previ-
ously declared in breach of law already settled their breach fully and 27 536
partially. If a company does not settle its breach fully it continues to be
considered as a company in breach. Although a company declared in breach
of law faces administrative sanctions as mentioned above (including the
inability to receive a loan or open a new bank account) which motivate it to
remedy its breach during the review period no direct financial sanctions have
been applied. This might lead to a limited motivation to file the required
information with the Registrar as evidenced by the low level of compliance
and restricts the amount and reliability of the information contained in the
Registry of Companies. The Israel Corporation Authority is aware of this
issue and takes active steps to address it. New regulations will come into
force in January 2015 providing for the application of administrative fines in
all cases where company fails to submit the required information or pay the
annual fee.
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52 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
151. Income tax returns of companies must contain a report of its cur-
rent shareholders (s. 131(a)(5). Non-compliance with the requirements of
filing tax returns and other reports to tax authorities as per provisions of
sections 131 to 133 of the Income Tax Ordinance are sanctionable with an
administrative fine of NIS 380 per month of delay (s. 188 ITO) or with crimi-
nal sanction of one year imprisonment, or a fine of NIS 26 100 (EUR 5 220),
or both (s. 216(4) ITO). The assessing officer can decline to receive a report
which does not include all required information or is unclear. If the report is
declined it is considered as not filed and appropriate sanctions apply. These
enforcement measures apply to all persons including domestic and foreign
companies, partnerships, trustees, settlors or beneficiaries and individu-
als. In practice, the administrative fine for late or non filing was applied in
76 667 cases in 2011 and in 50 893 cases in 2012. The criminal fine was
applied in 1 814 cases in the tax year 2011 and in 2 031 cases in the tax
year 2012. The total amount of criminal fines applied in 2011 and 2012 was
NIS 18 628 992 (EUR 3.7 million) and NIS 13 005 000 (EUR 2.6 million)
respectively. Statistics for the tax year 2013 are not yet available.
152. The ITO obliges all persons including companies to notify the assess-
ing officer about the beginning or change of occupation in time. The defaults
of failure to inform the assessing officer of this fact in time and also non sub-
mission of its first annual tax return after the event are liable to three years of
imprisonment or to a fine of NIS 75 300 (EUR 15 060) and to another fine of
half the tax to which it was liable (s. 215A(a) ITO). In practice, the fine was
applied in 36 cases in the tax year 2011, in 37 cases in the tax year 2012 and
in 16 cases in the tax year 2013.
153. Partnerships formed for the purpose of managing a business must
be registered within one month from the date of formation (s. 4 PO).The
registration of partnerships ensures availability of information on partners.
If a partnership does not register as required by law, then each of its partners
is liable to a fine of NIS 15 (EUR 3) for each day on which the offense con-
tinues (s. 6 PO). In practice, this sanction was not applied during the period
under review. Although information on partners in a partnership is available
based on tax filing obligations Israel Corporation Authority is taking steps to
ensure that the financial sanction for partnerships failing to file information
with the Registrar will be applied from 2015.
154. If a property is in effect an endowment and no instrument of endow-
ment exists as required by law, then the court may declare the existence of
an endowment trust and may determine its objects, property conditions and
date of commencement (s. 17 TL). No information is available on the number
of cases over the period under review where this provision was applied in
practice. According to Israel authorities the making of such declarations in
practice is expected to be rare.
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COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 53
155. An association must keep a register of members and board members.
An association and every person responsible who does not keep a register
of members or board members are liable to a fine of NIS 1 000 (EUR 200)
(s. 64 AL). This sanction was not applied in practice during the period
under review. However, if the association does not file an annual return,
the provided information is incomplete or false or it is found during on-
site inspection that the association does not comply with its obligations its
Certificate of Proper Conduct is cancelled. The Certificate of Proper Conduct
has to be renewed each year. About 16% of Certificate applications are denied
yearly and approximately about 30 Certificates (0.2%) are cancelled after
their issuance. Associations acting in Israel which do not have the Certificate
of Proper Conduct are severely restricted in their activities. The Authorisation
is required among others in order to receive government subsidy, to supply
services to the government or a gift is tax deductible only to association with
the authorisation.
Conclusion
156. Israels tax, commercial and AML/CFT rules are sufficiently backed
up by enforcement provisions ensuring availability of relevant owner-
ship information. Availability of ownership information for tax purposes
is ensured by tax law obligations requiring persons to provide ownership
information upon registration and annually. If the requested information is
not already filed and at the disposal of the tax administration the tax author-
ity enforces its availability by application of administrative and criminal
sanctions and by use of enforcement measures including search and seizure.
Therefore availability of ownership information in Israel does not depend on
entities filing obligations to the Israel Corporation Authority. Nevertheless
it is noted that financial sanctions available under the Company Law,
Partnership Ordinance and Association Law were not applied in practice
during the reviewed period despite identified failures and Israel is encour-
aged to address this issue. The Israeli authorities are aware of this issue and
are already taking steps to remedy it. From January 2015 a new regulation
will come into force which provides for application of administrative fines
in all cases when company fails to submit the required information or pay
the annual fee. By the end of 2015 all registration and obligatory filing with
the Registrar will be conducted on line allowing better detection of non-
compliance. In the same year on-line Register of pledges for bank creditors
should be put in place.
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54 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
Determination and factors underlying recommendations
Phase 1 determination
The element is in place, but certain aspects of the legal implementation
of the element need improvement.
Factors underlying
recommendations Recommendations
Israel authorises the issuance of
bearer shares by companies other
than those registered on the stock
exchange. There are mechanisms
in place to identify holders of those
shares in certain circumstances. Only
11 companies have issued bearer
shares and only three of them are
active.
Israel should take necessary
measures to ensure that robust
mechanisms are in place to identify
the owners of bearer shares.
Israeli law does not ensure the
availability of identity information in
respect of the settlors, trustees and
beneficiaries of foreign resident trusts
having a trustee resident in Israel and
for trusts created by new immigrants
and veteran returning residents which
are vested with assets or income
from assets abroad for a period of
10 years.
Israel should ensure the availability of
identity information in respect of the
settlors, trustees and beneficiaries
of foreign resident trusts having a
trustee resident in Israel and for
trusts created by new immigrants and
veteran returning residents which are
vested with assets or income from
assets abroad.
Phase 2 rating
Largely compliant.
A.2 Accounting records
Jurisdictions should ensure that reliable accounting records are kept for all
relevant entities and arrangements.
157. A condition for exchange of information for tax purposes to be effec-
tive is that reliable information, foreseeably relevant to the tax requirements
of a requesting jurisdiction, is available, or can be made available, in a timely
manner. This requires clear rules regarding the maintenance of accounting
records.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 55
General requirements (ToR A.2.1)
158. Private companies must keep accounts and are obliged to prepare
annual financial reports (s. 171 CL). The financial reports need to be approved
by the board of directors and signed in its name (s. 171 CL). A private com-
pany shall prepare financial reports for each year, which shall include a
balance sheet as of the 31
st
of December as well as a profit and loss account
for the period of a year ending on that date, and other financial reports, in
accordance with the requirements of accepted accounting rules (s. 172(a)
CL). The reports meet the international standard since they must be prepared
in accordance with accepted accounting rules in Israel (s. 172(d) CL) which
are in accordance to the Framework for the Preparation and Presentation of
Financial Statements (FPPFS) published by the International Accounting
Standards Board (IASB) that determine that the objective of financial reports
is to provide information about the financial position, financial performance
and cash flows of an entity that is useful to a wide range of users in making
economic decisions (p. 12 FPPFS). Due to the aforementioned, private com-
panies must keep accounts that (i) correctly explain all of its transactions,
(ii) enable the financial position of the company be determined with reason-
able accuracy at any time and (iii) allow financial statements to be prepared.
159. The board of directors of a private company must present the reports
approved by it to the annual general meeting (173(a) CL). The reports are
required to be kept at the registered office of the company for at least seven
years from the date on which they were prepared, for the inspection of the
directors and shareholders of the company (173(c) CL). A shareholder in a pri-
vate company may receive a copy of the reports (s. 174(d) CL). Furthermore,
the directors of a company must ensure that a full set of financial accounts
(financial statement) is drawn up in accordance with accepted accounting
rules (s. 92(a)(5) and s. 172(a) CL). If a company does not prepare financial
reports it is liable to a fine of NIS 6 000 (EUR 1 200) (s. 354(a) CL).
160. Public companies must keep accounts and are obliged to prepare
financial reports in accordance with the Securities Law (s. 171 CL). The
Minister of Finance is empowered under the Securities Law (SL) to enact
regulations with regard to financial reporting of public companies (s. 17 SL).
The Securities Regulations (Preparation of Annual Financial Statements)
5753-1993 (SR) determine that the financial statements of public companies
must be prepared in accordance with the accounting rules and must fairly
reflect the position of the corporations business on the balance sheet dates,
the result of its activities, the changes in its net worth and its cash flow in
the reported years (s. 3 SR). The financial statements of a company issuing
securities in a foreign country may be prepared in accordance with interna-
tional accounting standards or accepted accounting rules in the United States
(s. 3A SR). The assets of the corporation should be classified and presented
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
56 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
in the following categories: (i) current assets; (ii) non-current inventory;
(iii) investments, loans and long-term debit balances; (iv) fixed assets; and
other assets, including intangible assets and deferred expenses (s. 12 SR).
Public companies are also obliged to report the details of their investments in
controlled companies which should be classified in: (i) shares; (ii) certificates
that grant a right to purchase shares; (iii) certificates of indebtedness that
can be converted into shares; (iv) certificates of indebtedness that cannot be
converted into shares; and (v) loans and debit balances that are not included
in the current assets (s. 22 SR).
161. Public companies are also required to report information on their
share capital which should include the number, class, nominal value and
main rights (s. 40 SR). The SR also includes an obligation on reporting taxes
on income on the current year and previous years (s. 57 SR). With regards to
ownership information of a public company, public companies must submit
information on their liabilities to their principal shareholder; their invest-
ments in a principal shareholder; and the benefits to a principal shareholder
and transactions with him (ss. 62, 63 and 64 SR). The accounting records
kept by public companies must correctly explain all the transactions of the
company, enable the financial position of the company to be determined
accurately at any time and allow financial statements to be prepared.
162. The SR defines the international auditing standards as the standards
published by the International Federation of Accountants (IFAC) (s. 1 SR).
The International Auditing Standard on Auditing (IASA) 200 require finan-
cial statements to be a structured representation of the financial information,
which ordinarily includes accompanying notes, derived from accounting
records and intended to communicate an entitys economic resources or
obligations at a point in time or the changes therein for a period of time
in accordance with a financial reporting framework (p. 34 IASA). The
International Financial Reporting Standards (IFRS) published by the IFAC
require financial statements to provide information about the financial posi-
tion, performance and cash flows of an entity. The IFRS require financial
statements to include a balance sheet; an income statement; a statement of
changes in equity; a cash flow statement; and notes, comprising a summary
of significant accounting policies and other explanatory notes. Taking into
account the requirement that the accounts must be audited under Israeli law,
it may be expected that the records to be kept (i) correctly explain all trans-
actions, (ii) enable the financial position of the entity or arrangement to be
determined with reasonable accuracy at any time, and (iii) allow financial
statements to be prepared.
163. Partners within a partnership are bound by a duty to conduct the
business of the partnership for their common benefit, to be honest and trust-
worthy on another and to provide every partner or his proxy correct accounts
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 57
and complete information on all matters concerning the partnership (s. 29
PO). Similarly, the Trust Law determines that the trustee of a trust must keep
account books in respect of the affairs of the trust (s. 7 TL). A trustee of an
Israeli trust must report to the beneficiaries on the affairs of the trust, annu-
ally and upon termination of his tenure, and to provide them with any other
additional information that they may reasonably request (s. 7 TL).
In practice
164. Private companies and partnerships are not required to submit
financial reports to the Registrar of Companies. Public companies listed on
the Tel Aviv Stock Exchange are required to submit their financial reports
to the securities authority which also exercises supervision over this obliga-
tion. Public trusts are obligated to submit financial reports to the Registrar
of Trusts. The Registrar reminds trustees to submit an annual financial
report by letters before the deadline elapses. If the trust fails to submit finan-
cial statements within the deadline the trust does not receive a Certificate
of Proper Conduct. Trusts without such certificate are restricted in their
activities as public trusts and cannot be considered a charitable entity for tax
purposes. Associations are required to file financial reports annually with the
Registrar of Associations. The financial report including balance sheet and
profit and loss account needs to be approved by the general meeting of the
association. If the financial report is not provided the Registrar cancels asso-
ciations Certificate of Proper Conduct. Further, the Registrar of Associations
conducts regular on-site inspections during which obligations to maintain
accounting records are checked (see A.1.4).
Tax law obligations
165. The ITO in section 130(a)(1) prescribes that the Director of the Israel
Tax Authority (Director) may issue provisions ordering account books be
kept in respect of income derived from a business or vocation in Israel, and
in those provisions he may prescribe rules on the method of keeping the
account books, including the taxpayers duty to require a person with whom
he maintains any business relationship to deliver his personal particulars
to the taxpayer and to identify himself. These provisions are contained in
Income Tax Rules (Bookkeeping) 5733-1973 (ITR). Any person who fails
to keep account books in accordance with Income Tax Rules is liable to one
year imprisonment, or to a fine of NIS 29 200 (EUR 5 840), or both (s. 216(5)
ITO). The financial sanction under s. 216 of ITO was applied in 214 cases in
the tax year 2011, in 256 cases in 2012 and in 193 cases in 2013. The total
amount of fines applied was NIS 4.1 million (EUR 0.8 million), NIS 1.5 mil-
lion (EUR 0.3 million) and NIS 2.5 million (EUR 0.5 million). These
numbers also include other cases than failure to keep accounting books.
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58 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
166. Section 130 ITO only applies to persons liable to income tax in Israel.
This includes all companies organised or managed and controlled in Israel.
Although general and limited partnerships organised or managed and con-
trolled in Israel are considered transparent for tax purposes, each partnership
is required to file a return on behalf of the partners and so are subject to these
record-keeping obligations as well (s. 63(a) ITO). The tax return filing obliga-
tions and other reporting obligations on trustees, settlors and beneficiaries
ensure that they keep and maintain accounting information of the trusts so
as to fulfil their tax obligations properly. However, a gap remains in respect
of foreign resident trusts that have no assets or income in Israel. In that case,
there is no obligation on a trustee to keep and maintain accounting records
of the trust consistent with the standard as trust income derived from non
Israeli sources is not taxable in Israel. Similarly, in the absence of any tax
return filing requirement or reporting obligations on the trusts created by
new immigrants or veteran returning residents which are vested with assets
or income from assets abroad, it is unclear that accounting records consistent
with the standard will be maintained for those trusts. Foreign companies that
are managed and controlled in Israel by new immigrants or veteran returning
residents are exempt from taxation in respect of foreign source income for a
period of 10 years. As there are no obligations to file tax return or keeping
account books by such companies in respect of income which is not attrib-
utable to a source in Israel, the availability of their accounting records in
respect of activities outside of Israel is not ensured.
167. The Income Tax Regulations (Returns and Supplementary Returns
by Body of Persons) 5724-1963 require corporate entities to attach to their
annual tax return (i) a balance sheet as of the last day of the tax year and a
profit and loss account for the tax year, together with an auditors report; and
(ii) an adjustment account of the profit and loss of the income or loss declared
in the annual tax return.
168. Under the ITR a taxpayer must keep a set of account books in accord-
ance with the provisions of the applicable Schedule depending on the type of
business or profession carried on by him (s. 2 ITR). The ITR provides that all
taxpayers to whom the provisions of the Schedules apply are obliged to have
documentation that would include receipts, a daily intake ledger, cash regis-
ter, delivery notes, invoices and an inventory list (sections 5 through 10 ITR).
These taxpayers are also required to keep account books that should include a
cash book (s. 11 ITR), intake and payments book (s. 12 ITR), stock book (s. 13
ITR), goods of entry book (s. 14 ITR) and an order book (s. 15 ITR). Account
books required under Israeli tax law meet the international standard since
they would enable taxpayers to correctly explain all the transactions they
are engaged in, enable the financial position of the taxpayer be determined
with reasonable accuracy at any time and allow financial statements to be
prepared.
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COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 59
169. Persons who are tax residents but who are not covered by the obli-
gation to keep books and records under section 130 ITO are nevertheless
required to submit an income tax return if they receive income (s. 131 ITO).
Section 131(b) of the ITO further requires filing of a copy of the balance sheet
and profit and loss account with the tax return, if the return is based on a
complete set of double-entry accounts. In other cases, the basis of declaration
of income must be stated. It is noted that companies, partnerships, trusts and
associations are subject to obligations to keep books and records separately
from tax law.
170. Taxpayers are also required to keep accounting records under chapter
eleven of the VAT Law. (s. 66 VAT Law). These accounting records should
truly and completely reflect all transactions carried out by the taxpayer. If a
taxpayer does not keep accounting records as prescribed then a fine equal to
1% of the total price of his transactions or of the total amount of his wages
and profits, as the case may be, for the tax year in which books or records
were not kept can be applied (s. 95 VAT Act).
In practice
171. The tax administration conducts desk audits, on-site inspections and
uses computer software to detect discrepancies in the provided accounting
information or accounting books kept by the taxpayer when inspected. Book
keeping requirements are overseen by three departments in the Israeli Tax
Authority. The Book keeping department carries out on-site inspections and
desk based reviews specifically devoted to record keeping requirements.
The department also checks incoming\outgoing goods, the way these goods
are recorded in the accounting books of the taxpayer and the documentation
required to be attached to them. The department conducted 30 539 on-site
inspections in 2011, 36 539 in 2012 and 45 985 in 2013. The main deficiencies
related to incomplete invoice details or misreporting of cash receipts. The
assessment department carries out tax audits for the purpose of proper tax
assessment. A compulsory part of these tax audits is the audit of account-
ing records. About 4% of corporate taxpayers are audited per year on a risk
based approach. Accounting records are also subject to enquiries of the VAT
department. The VAT department performs book keeping audits in the course
of the regular VAT audits. The department conducted 4 090 on-site inspec-
tions in 2011, 3 900 in 2012 and 3 980 in 2013.
172. If the taxpayer is not compliant with accounting obligations his/her
accounting records will be disregarded and the tax assessment will be based
on the assessing officer estimate. A taxpayer whose accounting books were
disqualified is not entitled to several benefits such as reduced advance pay-
ments or withholding tax rates. Further, sanctions under s. 216(5) ITO (see
above) and under s. 95 of the VAT Law are applied. VAT sanctions for not
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
60 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
keeping accounting records in line with the requirements were applied in
406 cases in 2011, in 519 cases in 2012 and in 543 in 2013. The total amount of
applied fines was NIS 21.7 million (EUR 4.3 million) in 2011, NIS 61.4 mil-
lion (EUR 12.3 million) in 2012 and NIS 40 million (EUR 8 million) in 2013.
Underlying documentation (ToR A.2.2)
173. Section 130 of the ITO requires all taxpayers deriving income to keep
account books. As mentioned above, these include underlying documentation
such as receipts, invoices, a daily intake ledger, cash register tape, delivery notes
and an inventory list (ss. 5 to 10 ITR). The ITR describes the aforementioned
documentation as internal and external documentation. The ITO exempts certain
category of persons from obligations of keeping account books. Section 130(a)
(3) of the ITO empowers the Director to exempt a small business from the duty
of keeping account books if he meets criteria set by the Director in respect of a
physical or mental condition or illiteracy. The exemption is granted after receiv-
ing the opinion of a committee appointed by him and is on case to case basis. A
small business is defined as a business whose main income stems from grocer-
ies such as vegetables, fruits, cigarettes or light soda and entire business turnover
during the year does not exceed NIS 310 000 (EUR 62 000).
174. Account books must comprehend internal documentation that would
be underlying documentation that would correctly explain all the transac-
tions of a taxpayer for which he received income (s. 17(a) ITR). Taxpayers
are required to keep internal documentation that must be registered near the
time when an act was performed regarding an intake, a sale, the shipment or
transportation of goods or the provision of a service (s. 17(a) ITR). Internal
documentation is defined in the ITR as a record of an act performed by the
taxpayer or on his behalf (s. 1 ITR). Section 5 of the ITR determines that
internal documentation which is a receipt shall be drawn up for each intake
separately, and it must include: (i) a serial number; (ii) the name of the tax-
payer, his ID number, entity registration number or registration number for
VAT purposes; (iii) the date; (iv) the name and address of the payer; (v) the
amount received; (vi) the nature of the intake or the account to be credited;
and (vii) the recipients signature, unless the receipt was sent as a computer-
ised document. Taxpayers are also required to have a daily intake ledger in
their internal documentation that shall be a bound book and must include:
(i) the name of the taxpayer; (ii) the date of the beginning of each day; (iii) the
amount of each intake received separately for a sale or a service, including a
conditional sale or indirect tax; and (iv) the total, in ink, of all the amounts
received, that has to be recorded at the end of each day or next morning (s. 6
ITR). Internal documentation requirements are also provided for the cash
register tape, delivery notes, invoices and an inventory list that taxpayers are
required to have (sections 7 through 10 ITR).
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 61
175. In addition, account books must include external documentation
on all the transactions in respect of which a taxpayer incurred an expense.
Section 14(b)(3) of the ITR establishes that every entry of goods into a busi-
ness shall be recorded in the goods entry book indicating the specification
and quantity of goods that will be supported by external documentation that
will specify the goods that were received. The ITR defines the term external
documentation as a record of an act, which was received by the taxpayer or
on his behalf from an outside factor (s. 1 ITR). If the taxpayer has sent or
received the external documentation by computer then the record that is in
a computerised document will be considered external documentation (s. 1
ITR). With regards to the goods of entry book taxpayers have an obligation
to register the specification and quantity of goods received and this registra-
tion should be backed up by external documentation that specifies the goods
that were received. Schedule One of the ITR require that bookkeeping by
producers, retailers, contractors, professionals, physicians and other types of
taxpayers include a file of external documentation.
176. Taxpayers subject to VAT must further fulfil specific requirements
regarding documentary evidence of transactions performed (s. 66 VAT Law).
Among other things, they must keep all documents from which flows of
goods and services can be traced, and, more generally, all invoices.
177. Tax obligations to keep accounting underlying documentation are
supervised in the same way as general accounting obligations. On-site inspec-
tions and tax audits carried out by the tax administration include checking
whether accounting underlying documentation is kept. If underlying documen-
tation is not properly kept the taxpayers tax assessment is based on an estimate
and sanctions under s. 216(5) ITO and under s. 95 of the VAT Law are applied.
5-year retention standard (ToR A.2.3)
178. For tax purposes, account books are required to be kept for seven
years from the end of the tax year to which they refer, or for six years after
the day on which the return for that tax year was submitted, whichever is later
(s. 25(c) ITR). Since underlying documents form part of the account books
the same retention period applies for the underlying documentation required
to be kept for tax purposes (invoices and receipts, see ss. 5 to 10 ITR). As
this requirement is linked to the general requirements under section 130
ITO, it also covers all relevant entities and arrangements (see A.2.1). The CL
contains a minimum retention period of 7 years for accounting records (sec-
tions 124 and 173 CL). The same retention period is also prescribed under
the VAT Law (s. 75 VAT Law). None of the tax administration departments
supervising obligations to keep accounting records identified a case during
the period under review where accounting records were dispatched before the
end of the retention period prescribed by law.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
62 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
Conclusion
179. All relevant entities in Israel are subject to legal requirements under
tax law and commercial laws to maintain accounting records and underlying
documentation for a minimum of six years. There is however a gap relating to
the availability of accounting records in respect of foreign resident trusts having
a trustee resident in Israel and for trusts created by new immigrants and veteran
returning residents which are vested with assets or income from assets abroad
and in respect of activities outside of Israel carried out by foreign companies
managed and controlled in Israel by new immigrants or veteran returning
residents. Israel did not receive any EOI request during the reviewed period
requesting information covered by this gap. The Israeli authorities confirmed
that they are able to provide information on new immigrants or veteran returning
residents only when it is filed with the tax administration, i.e. identification of the
taxpayer and information related to income or assets generated in Israel, or the
requested information is held by a third party in Israel (see further section B.1.1).
180. Israels legal and regulatory framework is adequately applied to
ensure the availability of accounting information when the obligation to
maintain such information exists. There has been no case where accounting
information was not provided because the requested information was not
available. Israel received 40 requests for accounting information over the
reviewed period. In six cases the requested accounting information has not
been obtained from assessing officers because the holder of information is
not identifiable or contactable in Israel. No peer indicated concerns about the
availability of accounting information in Israel.
Determination and factors underlying recommendations
Phase 1 determination
The element is in place, but certain aspects of the legal implementation
of the element need improvement.
Factors underlying
recommendations Recommendations
Israeli law does not ensure the
availability of accounting records
in respect of foreign resident trusts
having a trustee resident in Israel and
for trusts created by new immigrants
and veteran returning residents which
are vested with assets or income from
assets abroad for a period of 10 years.
Israel should ensure that accounting
records consistent with the standard
are maintained for foreign resident
trusts having a trustee resident in
Israel and for trusts created by new
immigrants and veteran returning
residents which are vested with assets
or income from assets abroad.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 63
Phase 1 determination
The element is in place, but certain aspects of the legal implementation
of the element need improvement.
Factors underlying
recommendations Recommendations
Israeli law does not ensure availability
of accounting records in respect of
activities outside of Israel of foreign
companies that are managed and
controlled in Israel by new immigrants
or veteran returning residents for a
period of 10 years.
Israel should ensure availability of
accounting records in respect of
activities outside of Israel of foreign
companies that are managed and
controlled in Israel by new immigrants
or veteran returning residents.
Phase 2 rating
Largely compliant.
A.3 Banking information
Banking information should be available for all account-holders.
181. The Banking (Licensing) Law (BL) determines that only banking
corporations shall engage in: (i) acceptance of deposits of funds and issuance
of credit as one activity and (ii) securities issuance that entails a prospectus
under Section 15 of the Securities Law, 5728-1968, and issuance of credit as
one activity (Section 21). In addition only banks or foreign banks, licensed
by the Governor of the Central Bank, are allowed to engage in acceptance
of deposits of funds in current accounts for payout from said deposits by
cheque upon demand (Section 13 BL). Banks are allowed to engage only in
banking business specified in Section 10 of the Banking Law (s. 3, s. 4 and
s. 10 BL). The Bank of Israel is the regulatory and supervisory body for the
Israeli banking industry. As at April 2014, a total of 20 banks were operat-
ing in Israel. The Postal Bank is Government owned and supervised by the
Ministry of Communications.
Record-keeping requirements (ToR A.3.1)
182. The requirements for identity information banks must keep on account
holders are primarily provided in the Prohibition of Money Laundering (The
Banking Corporations Requirement regarding Identification, Reporting, and
Record-Keeping for the Prevention of Money Laundering and the Financing
of Terrorism) Order, 5761-2001 (PMLO). Section 2(a) of the PMLO establishes
that a banking corporation shall not open an account without recording the
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64 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
following identification particulars in respect of each of the account holders
or authorised signatories, and in respect of any other person applying to open
an account, and authenticating them as set forth in section 3 of the PMLO:
(i) name; (ii) identification number; (iii) date of birth for an individual or date
of incorporation for a company; and (iv) address. Comparable obligations in
case of the Postal Bank are stipulated in the Order No.5762-2001.
183. In addition, the Prohibition on Money Laundering Law (PMLL)
requires that the banking corporations must not provide services in con-
nection with a property transaction unless they possess the identifying
particulars (CDD) as specified in the PMLO (s. 7(a)(1) PMLL).
184. Banking corporations and other financial institutions have the duty,
before opening an account, to receive from the customer a declaration bear-
ing an original signature stating whether he is acting for himself or on behalf
of another. If the applicant declares that he is acting on behalf of another
person, the declaration must include the name and identity number of the
beneficiary of the account (s. 4 PMLO). Banking corporations are obliged
to record the name and identity number of the beneficiary of the account in
accordance with the aforementioned declaration (s. 2 PMLO). Failure to carry
out CDD or to maintain the identification documentation for at least seven
years after the end of relationship can lead to an administrative fine of no
more than NIS 2 260 000 (EUR 452 000) for each default (s. 14(a) PMLL).
This fine was not applied in 2011, there were two cases in 2012 and two cases
in 2013. The total amount of fines applied was EUR 1.1 million in 2012 and
EUR 1.7 million in 2013.
185. Even though financial institutions under section 18 of Directive
411 on the Prevention of Money Laundering and Terrorism Financing,
and Customer Identification (Directive 411) may have numbered accounts
(accounts in which the name of the beneficial owner is known by the banking
corporation but is substituted by an account number or code name in some
documentation) they must abide by the following rules:
(a) numbered accounts shall be subject to customer due diligence proce-
dures applicable to all accounts;
(b) the identity of a customer with a numbered account shall be known
to a sufficient number of officials to enable a thorough and adequate
check of the customers identity and to monitor his transactions for
purposes of identifying unusual activity;
(c) numbered accounts shall not be used to hide a customers identity
from the compliance or supervisory authorities; and
(d) a banking corporation which takes special measures to ensure inter-
nal secrecy in regard to customers accounts shall ensure that the
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accounts of these customers are examined and monitored at least as
thoroughly as accounts of customers regarding whom no such spe-
cial measures are taken, and shall ensure that the officer responsible
and the internal auditors shall have direct access to the information
on these accounts.
186. Due to the legal requirements mentioned above, financial institu-
tions cannot keep anonymous accounts or other types of accounts which are
opened on behalf of another person which are not identified and known.
187. Section 7 of the PMLO requires banking corporations to retain iden-
tification documents or photocopies thereof for at least seven years after the
account is closed or a transaction has been carried out. Banking corporations
are obliged to retain the documents attesting to the instruction to the banking
corporation to carry out a transaction for the same period.
188. The Proper Conduct of Banking Business Directive 411 determines
that banking corporations must establish procedures for the retention of
information essential for authenticating customers identity and their type
of business, the period for which it should be retained, the type of customer
(individual, company, etc.), and the expected extent of activity in the account
(s. 13(a) Directive 411). The information shall be retained in a manner which
will make it readily available and enable efficient retrieval (s. 13(a) Directive
411).
189. Section 13(b) of Directive 411 requires that a banking corporation
shall undertake reviews to ascertain the existence of adequate and updated
information and that the reviews shall take place at times and on occasions
determined by the banking corporation in its procedures, such as when a sig-
nificant transaction is about to take place, or when the requirements relating
to customer documentation change, or when the way the account is managed
alters significantly. If a banking corporation discovers that certain significant
information about a customer is lacking, it shall take steps to ensure that it
obtains the missing information as soon as possible (s. 13(b)(3) Directive 411).
190. Section 16(b) of Directive 411 requires banking corporations to
record the identity of the person requesting a transaction in transactions
involving sums below NIS 10 000 (EUR 2 000). The Directive has the force
of law as it is regarded as a Regulation according to section 5(c 2)(1) of the
Banking Ordinance, 1941.
191. The AML/CFT laws were amended to require that the documents
attesting the instruction to carry out a transaction must be recorded for a
period of seven years or longer if requested by the bank supervisor. The
amendment requiring that all documentation attesting transactions carried
out in the course of business relationships must be kept regardless of any
threshold was passed by the Knesset in February 2014 and comes into force
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66 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION
on 2 August 2014. Since the new obligation came into force very recently
and is untested in practice, Israel should monitor the availability of docu-
ments attesting the instruction to carry out transactions and effectively apply
enforcement measures when documentation required under AML/CFT rules
is not kept.
192. Provisions of the PMLL, the PMLO and the Directive create clear
obligations on the banks to keep customer identification information and
transactional documentation in respect of all the accounts consistent with the
standard.
193. The implementation of AML/CFT rules by banking corporations
is supervised by the Bank of Israel (Banking Supervision Department).
The Banking Supervision Department has 150 employees. There are two
divisions in the Department carrying out supervisory and enforcement
measures (see also section A.1.1). Each division has about 35 employees.
The Institutional Evaluation Division carries out off-site inspections and the
Inspection Division is devoted to on-site inspections. Each bank is subject
to ongoing monitoring through quarterly off-site checks. On-site inspections
are based on the results of this monitoring and independent risk analysis.
Nevertheless, each bank is subject to on-site inspection at least once in every
five years. The Banking Supervision Department conducted three on-site
inspections in 2010, six in 2011 and four in 2012. Availability of banking
information including transactional documentation, financial statements and
KYC documentation is verified during each inspection. Inspections might be
focused on general aspects of the banking corporations activities or can be
targeted to specific transactions or on specific types of customers. Inspectors
review banks AML procedures, internal audit reports, manuals and sample
of accounts and KYC files using a risk based approach. After each on-site
inspection a report is prepared. If deficiencies are found the bank is given a
deadline varying from a few days to a maximum of one year to address the
deficiencies. In the vast majority of cases banks address identified deficien-
cies in time and no further sanctions need to be applied. Financial sanctions
are applied by the sanction committee when serious failures are identified.
The supervisor may also require the bank to hire an external auditor to over-
see implementation of supervisors recommendations. The external auditor
must confirm to the supervisor and to the board of directors of the bank
that main deficiencies have been addressed in an appropriate manner. The
number of deficiencies found has significantly decreased since the first round
of inspections carried out in 2002-04. During its supervision, the Bank of
Israel identified three violations of AML/CFT rules in 2010, six in 2011 and
two in 2012. The total amount of sanctions applied was EUR 1.54 million in
2010, none in 2011 and EUR 1.18 million in 2012. Based on outcomes of the
third round of inspections, which is currently being carried out, there are no
major deficiencies found in respect of maintaining transactional and KYC
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documentation and the level of compliance is, by supervisory authorities,
considered very high.
194. Over the period under review Israel received 27 requests for banking
information. One peer raised a concern about the availability of transactional
and KYC documentation such as signature cards, application forms or iden-
tification documentation indicating that such information was provided only
in one response over the reviewed period. This might be caused according
to the peer by unavailability of the information or difficulties in obtaining it.
As described above unavailability of transactional or KYC documentation
has not been confirmed in practice. There was no case during the period
under review where the requested banking information was not available.
Nevertheless exercise of access powers in respect of banking information
might limit provision of certain types of requested information as described
in section B.1.5. In ten cases the requested banking information has not yet
been provided. These cases relate to the exercise of access powers in respect
of banks or are awaiting clarification from the requesting jurisdiction (see
further sections B.1.5 and C.5.2).
Determination and factors underlying recommendations
Phase 1 determination
The element is in place.
Phase 2 rating
Largely compliant.
Factors underlying
recommendations Recommendations
The AML/CFT law requires that all
transactional documentation carried
out in the course of established
business relationships must be
kept regardless of any threshold.
The obligation came into force only
recently and is untested in practice.
Israel should monitor the availability
of transactional documentation
regardless of any threshold and
effectively apply enforcement
measures where documentation
required under AML/CFT rules is not
kept.
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B. Access to Information
Overview
195. A variety of information may be needed in a tax enquiry and
jurisdictions should have the authority to obtain all such information. This
includes information held by banks and other financial institutions as well
as information concerning the ownership of companies or the identity of
interest holders in other persons or entities, such as partnerships and trusts,
as well as accounting information in respect of all such entities. This section
of the report examines whether Israels legal and regulatory framework and
its implementation in practice gives the authorities access powers that cover
the right types of persons and information and whether rights and safeguards
would be compatible with effective exchange of information.
196. The Israeli tax administration has broad powers to access informa-
tion relevant for the tasks of the tax administration from any person and
from public authorities. The assessing officer may ask a person for delivery
of his return including declaration of the capital and assets and for providing
books documents, accounts and returns which the assessing officer deems
necessary. The assessing officer is empowered to also require relevant tax
information from third parties (e.g. suppliers, customers, payers of taxable
income, employers). These information gathering powers include power to
enter any place in which a business or a vocation is carried on, and examine
and seize stock in trade, the cash box, machinery, books, accounts, vouchers,
records and other documents deemed necessary. The assessing officer also
has the power to summon any person who has business relations with the
assessee and who he believes can testify on his income. Non-compliance can
be sanctioned with administrative as well as criminal penalties. However,
there are some limits on these powers in respect of information relating to
new immigrants or returning veterans during a 10 year tax exempt period and
in respect of foreign resident trusts.
197. The main sources of information in practice are the tax database
(SHAAM), the taxpayers file at the local tax office, the taxpayer and
banks in respect of banking information. The requested information is
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70 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION
already at the disposal of the EOI Unit or the tax administration in general in
69% of requests.
198. The Israeli authorities advise that usage of these broad informa-
tion gathering powers for exchange of information purposes is based on
integration of agreements affording double taxation relief into domestic
law through the ITO. Section 196 of the ITO has the effect of incorporating
the information exchange article of the relevant agreement into the tax law,
and accordingly exchange of information with foreign authorities is made a
purpose of the tax law. That said, the powers of authorities are not explicitly
drafted for the purposes of exchange of information and it is recommended
that Israel clarify its law in this respect. Moreover, the ITO does not give
effect to agreements concluded solely for the purpose of exchange of infor-
mation (e.g. TIEAs). As a result, Israels competent authority does not have
the power to obtain and provide information for the purpose of giving effect
to a TIEA. It is recommended that Israel rectifies this gap in its laws. The
Israeli authorities advise that at present their EOI relationships are based on
the DTCs only and an amendment to the ITO to empower its authorities to
execute the provisions of such agreements is in the legislative process.
199. Access to banking information for civil tax purposes involves an
element of proportionality which limits effective exchange of information.
Banks can object to provide the requested information if the interest of pro-
tection of private information of their clients prevails over importance of the
information for tax purposes. This condition also leads to restriction in the
amount and types of information which banks agree to provide to the tax
administration. Israel is therefore recommended to address this issue so that
all requested banking information regardless of the type of the information
or its volume can be obtained from banks in a timely manner.
200. The Income Tax Ordinance empowers the assessing officer to obtain
information from advocates. The advocate must provide information but
when they claim that information is privileged, the court decides the issue.
The definition of professional secrecy in the ITO is consistent with the
international standard. Cases where the relevant information is held only by
an advocate or other admitted legal representative are according to Israels
authorities not frequent in practice. Accordingly, there was no case during
the period under review where Israel requested information from admitted
legal representatives for exchange of information purposes. Consequently,
there was no case when a person refused to provide the requested information
because of professional privilege.
201. The exercise of rights and safeguards is compatible with an effec-
tive exchange of information. Israels law does not contain any notification
requirement relating to exchange of information procedures. The launch of an
administrative appeal does not have a deferral effect. In addition, there was
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no case during the period under review where an action taken to obtain and
provide the requested information was appealed.
B.1 Competent Authoritys ability to obtain and provide information
Competent authorities should have the power to obtain and provide information that is the
subject of a request under an exchange of information arrangement from any person within
their territorial jurisdiction who is in possession or control of such information (irrespective
of any legal obligation on such person to maintain the secrecy of the information).
Israels competent authority
202. Israels competent authority for exchange of information for tax pur-
poses is the International Tax Division. The International Tax Division is an
organisational part of the Israel Tax Authority designated by the Ministry of
Finance as the competent authority. The EOI Unit within the International
Tax Division is staffed with three permanent employees dedicated to
exchange of information.
Ownership and identity information (ToR B.1.1) and Accounting
records (ToR B.1.2)
203. The tax administration is under a general duty to systematically
ensure taxpayers and third parties compliance with obligations under
the ITO and has necessary powers for that purpose. The administration is
required and entitled to assess the correct tax liability of the taxpayer and in
order to do so has broad powers enabling it to obtain complete information
about persons income. This information can be gathered from broad variety
of persons, sources and by variety of means (s. 135140A ITO).
204. In order to obtain complete information about a persons income
the tax administration via assessing officer has power to demand from that
person by written notice delivery of his return specified in that notice, includ-
ing a declaration of the capital and assets of that person or of his spouse and
of their children for whom they are entitled to credit points or pension points,
or of assets for which he serves as a trustee of another person. The assessing
officer may also demand that the person appear before him, in person or by
a representative, and that he deliver to him all the particulars required by
the assessing officer in order to ascertain his income and that he produce for
examination books, documents, accounts and returns which the assessing
officer deems necessary (s. 135(1) ITO).
205. The assessing officer may enter any place in which a business or a voca-
tion is carried on, and examine stock in trade, the cash box, machinery, books,
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72 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION
accounts, vouchers, records and other documents that relate to that business
or vocation and demand explanations in connection with them. The assessing
officer can also seize books, accounts, vouchers, records and other documents
that relate to that business or vocation, if he is convinced that it is necessary in
order to ensure compliance with the provisions of the ITO or to prevent an eva-
sion of compliance with those provisions. The assessing officer may summon
any person who has business relations with the assessee and who he believes can
testify on his income, to appear before him and demand of the said person that
he give him documents that relate to that income (s. 135(2-4) ITO).
206. The Israeli tax administration also has the power to demand infor-
mation about suppliers and customers from a person that owns a business or
practices a vocation except for advocates, physicians and psychologists. Upon
demand of the assessing officer he must provide to the officer information
and documents about his business relations with his suppliers, customers or
other persons with whom he has business relations, even though that informa-
tion and those documents are not required to ascertain his income (s. 135A
ITO). Israeli authorities advise that this obligation also covers banks and
other financial institutions and prevails over any respective secrecy rules in
respect of these entities stipulated in Israeli laws.
19
207. The assessing officer may demand a return of income from a person
who receives profits or income to which ITO applies and which belong to
a certain person, or which pays said profits or income to a certain person.
This demand obliges the requested person to submit a return regardless the
capacity in which he received or paid the respective income. This return must
contain a true and correct disclosure of all those profits and income, and the
name and address of that certain person (s. 137 ITO).
208. Public authorities who have at their disposal information relevant for
the administration of ITO are under an obligation to provide information to
the tax administration if requested to do so (s. 140 ITO). These authorities are
the State, anybody subject to audit by the State Comptroller, and any other
body which the Minister of Finance, with approval by the Knesset Finance
Committee, declared a public body. However, this obligation does not apply
with respect to information which cannot be disclosed based on the Statistics
Ordinance, the Postal Bank Law, 5711-1951, or the Bank of Israel Law, 5714-
1953. Israeli authorities have confirmed that there is no limitation to the tax
authority power to request information imposed by bank secrecy rules.
209. The powers of the Israeli tax administration further include the spe-
cific power to demand a return about employees from an employer (s. 136
ITO), the power to demand a return from a house occupant (s. 138 ITO) or a
return about lodgers and tenants (s. 139 ITO).
19. See section B.1.5.
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210. The main sources of information for the tax administration are:
the tax database (SHAAM) the main database of the tax adminis-
tration. It contains information obtained from taxpayers tax returns,
tax assessments and third party reporting such as information from
the Registrar of Companies, the social security authority or the regis-
try of real estates. It is mostly used for the identification of taxpayers,
their addresses, reported income, taxes paid, residency etc.;
the taxpayers file at the local tax office includes tax returns, finan-
cial reports, communication between the taxpayer and assessing
officer, original documentation obtained from the taxpayer or audit
reports;
the taxpayer the taxpayer is contacted directly only for information
which cannot be obtained otherwise. This is the case for accounting
underlying documentation such as invoices, shipment bills, contracts
or business correspondence;
banks in respect of banking information.
211. The EOI unit has full access to the IT database and can provide
the requested information directly to the requesting competent authority if
the requested information is contained therein and is readily retrievable. If
the requested information is not in the IT database the EOI unit approaches
the assessing officer where the taxpayers file is kept. If information is not
contained in the IT database or in the tax file the Israel Tax Authority uses
powers under sections 135-140 of the ITO described above.
212. Over the period under review, the requested information was
already at the disposal of the EOI Unit in 33% of requests;
already at the disposal of the tax administration in 36% of requests;
in possession or control of the taxpayer subject to the enquiry in 14%
of requests;
in possession or control of a third party in 1% of requests;
in possession of a bank in 16% of requests.
213. An individual who became an Israeli resident for the first time and a
veteran returning resident during the period of ten years after the date on
which they became residents are exempt from tax on their income from all
the sources that were produced or accrued abroad or that are derived from
assets abroad, unless they elect otherwise (s. 14(a) ITO). Such persons are not
required to submit a return of their capital and assets abroad during ten years
after the date on which they became an Israel resident. Trustees of a foreign
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74 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION
resident trusts are not subject to any tax return filing or any other reporting
obligations. The Israeli authorities advise that, they can use their domestic
law powers to gather information for EOI purposes but the new immigrant
and veteran returning resident can decline to supply information on capital
and assets abroad during the first ten years. Similarly, information from a
trustee of a foreign resident trusts cannot be obtained.
214. Israel received one request over the period under review related to new
immigrants or veteran returning residents. Only information related to income
generated in Israel and already contained in the IT database was provided.
The Israeli authorities confirmed that they are able to provide information on
new immigrants or veteran returning residents which is contained in their tax
returns (i.e. identification of the taxpayer and information related to income
or assets generated in Israel) or information which can be obtained from third
parties in Israel. However, information which is held only by the new immi-
grants or veteran returning residents cannot be obtained and provided.
Use of information gathering measures absent domestic tax interest
(ToR B.1.3)
215. The concept of domestic tax interest describes a situation where a
contracting party can only provide information to another contracting party
if it has an interest in the requested information for its own tax purposes.
216. The information gathering powers of Israels tax administration are
stipulated under s. 135-140 of the ITO. The respective sections make refer-
ence to assessing officer, a person and an income. Section 1 of the ITO
defines person to include a company and a body of persons as defined in the
Ordinance. Company is defined as a company incorporated or registered in
Israel or elsewhere. Income is defined as a persons total income from the
sources specified in section 2 and together with amounts in respect of which
any statute provides that they be treated as income for the purpose of the
Ordinance (s. 1, ITO).
217. Israels tax administration has sufficiently broad access powers for
domestic tax purposes. Their usage for exchange of information purposes is
based on treaties and the way in which they have been given effect in Israels
law. Provisions concerning double taxation relief are contained in Chapter III
(sections 196 to 214) of the ITO. Section 196 in relation to the order that gives
effect to agreement reads as:
Order that gives effect to agreement
196. (a) When the Minister of Finance has given notice by Order,
that an agreement specified in the Order was concluded with
a certain state to afford double taxation relief on income tax
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and on every other tax of a similar character imposed by
the Laws of that state (hereafter: reciprocating state) and
that it is expedient to give that agreement effect in Israel,
then that agreement (hereafter: agreement) shall have effect
in relation to income tax, notwithstanding any provision of
any statute.
218. Section 196 incorporates the international agreement into the ITO,
including the relevant EOI article, so that the treaty has full effect in Israel in
relation to income tax. Accordingly, the authorities have an obligation to give
effect to the provisions of the exchange of information article in their tax trea-
ties. As described above, the Israeli tax authorities have a number of different
powers at their disposal for domestic tax purposes. The provisions themselves
are not specifically drafted with exchange of information in mind, and their
application for exchange purposes is clearer in some cases than in others. For
example, sections 135(2) (4) empower the assessing officer, among other
things, to enter any place in which a business or a vocation is carried on and
examine any documents and demand explanations. There is no aspect of this
provision that is specifically connected to the determination of Israeli tax.
On the other hand, section 135 refers to requiring a person to submit a return
or provide any information to the assessing officer in order to determine that
persons income and it might be argued that this requires a domestic tax inter-
est, although no issues have ever arisen in practice in this regard. Moreover,
section 196 of the ITO only refers to double tax conventions and does not
apply to TIEAs. Therefore, the Israeli Tax Authorities do not have the power
to obtain and provide information for the purpose of responding to a request
for information pursuant to a TIEA.
219. The tax administration can also exercise its access powers after lapse
of Israels domestic statute of limitation. The statute of limitation for domes-
tic purposes is three years from the end of the taxable period or taxable event
to which the requested information relates (s. 145(a) ITO). There has been
no case reported where Israel needed to obtain information in respect of tax
period closed for its domestic purposes.
220. In practice, Israel received 24 requests over the period under review
where the requested information related to a person who has no nexus
with Israel for tax purposes. No such request has been declined based on
the absence of domestic tax interest. The requested information has been
provided in 19 cases where the holder of the information was contactable.
The remaining five cases are pending. No issue of domestic tax interest was
indicated by peers.
221. Nevertheless, in view of the narrow wording of section 196 of the
ITO, it is recommended that Israel clarifies in its laws that the information
gathering powers under the Income Tax Ordinance can also be used for
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76 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION
exchange of information purposes, pursuant to both a DTC or TIEA. The
Israeli authorities advise that an amendment of the ITO providing for giving
effect to international agreements concluded solely for the administrative
assistance, and to clarify that their powers generally can be used for exchange
purposes, was submitted to the Knesset on 29 January 2014 and passed first
reading on 10 February 2014.
Compulsory powers (ToR B.1.4)
222. Jurisdictions should have in place effective enforcement provisions to
compel the production of information.
223. Israel has sufficient compulsory powers to enforce production of the
requested information based on administrative as well as criminal penal-
ties. According to s. 215 and s. 216 of the ITO, if a person does not appear,
as required by a notification under the ordinance or does not answer a ques-
tion lawfully put to him, or is guilty of an offence against the Ordinance or
against a regulation made there under and for which no specific penalty is
provided shall be liable to one year imprisonment, or to the fine as mentioned
in section 61(a)(2) of the Penal Law, or to both penalties. Article 61 (a) (2) of
the Penal Law, 5737-1977, provides that notwithstanding anything contained
in any law, when a court is empowered to impose a fine, it may impose a fine
of up to NIS 29 200 (EUR 5 840), in a case an imprisonment for six months
to one year is prescribed for the offence. Such an offence is also considered as
an administrative offence according to the section two of the Administrative
Offences Regulations, 5747-1987, and additional fine between NIS 980
(EUR 196) and NIS 8 500 (EUR 1 700) might be levied.

Sanctions for techni-
cal offences including not providing ownership or accounting information
were applied in 214 cases in 2011, in 256 cases in 2012 and in 193 cases in
2013. The total amount of fines applied in these years was NIS 4.1 million
(EUR 0.82 million), NIS 1.5 million (EUR 0.3 million) and NIS 2.5 million
(EUR 0.5 million) respectively. There is no information on any case during
the period under review where not providing the requested information led to
criminal charges or imprisonment.
224. The Minister of Police may also authorise an investigating assessing
officer to carry out investigations or searches in order to prevent or to detect
offences against the ITO and the authorised officers so appointed are granted
certain powers including those vested in a policeman and police officer of the
rank of inspector or above under section 2 of the Criminal Law Procedure
(Evidence) Ordinance. The authorised officer also has power to seize docu-
ments and power to record a statement and arrest a person. Israeli authorities
have confirmed that these powers can be used for EOI purposes. There are
currently ten assessing officers authorised to use these powers and one of
them is involved in obtaining the requested information for EOI purposes.
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COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 77
Secrecy provisions (ToR B.1.5)
Financial institutions
225. There are no specific bank secrecy rules in Israel and such a secrecy
stems from the contractual relationship between the bank and its customers
based on the Private Protection Law. Israels tax administration has the power
to directly request relevant tax information from banks and other financial
institutions (s. 135A ITO). The Supreme Court has acknowledged
20
that
banking secrecy has a unique standing but it does not override disclosure
obligation stipulated by the law.
226. Assessing officer is authorised to apply to a bank institution and
ask for information regarding accounts and assets which belong to specific
clients. Consequently, banks and other financial institutions are required to
provide the requested information to the tax administration.
227. The procedure for obtaining banking information varies depending
on whether the information is requested for civil or criminal tax purposes.
If the information is requested for civil purposes the information is gathered
directly through a contact person in the Intelligence Department of the Israel
Tax Authority who handles all requests for banking information. The request
is submitted by the EOI Unit officer to the contact person in a standard
format containing a description of the requested information, the reason for
such request and any other information that would facilitate obtaining the
information, such as background information on the case at stake. The tax
administration has a contact person in each bank with which all requests for
information related to the specific bank are communicated. If the informa-
tion is requested for criminal tax purposes the contact person applies to the
magistrate court to issue a warrant to the bank which is then required to pro-
vide the requested information (see section C.5.2). There have been no delays
encountered when banking information was requested for criminal purposes.
228. Access to banking information for civil tax purposes involves an
element of proportionality. Banks can object to provide the requested infor-
mation if the interest of protection of private information of their clients
prevails over importance of the information for tax purposes. A banks deci-
sion to provide the requested information takes into account reasons why
information is requested, its importance for the tax procedure or difficulty in
obtaining it. Although banks have a legal obligation to provide the requested
information (s. 135A ITO) in practice the tax administration is frequently
tasked to demonstrate proportionality of the request through negotiation
with the bank. If specific information other than bank account statements
is requested (such as transfer orders, signature cards, know your customer
20. Supreme Court decision Civil Appeal, 1917/92 Jacob Skholer vs. Bank Hamizrachi.
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78 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION
identification) the tax administration might be required to proceed in steps
to establish the relevance of the requested information. However, no specific
identification of the person holding the bank account is required to be pro-
vided to the bank if the account number is provided.
229. If bank refuses to provide the requested information it commits an
administrative and ultimately a criminal offence. However, application of
these sanctions requires evidence that bank has not provided the requested
information despite the request being proportionate. This has been confirmed
by the Supreme Court decision.
21
The Court stated that the right to privacy
is relative and it is necessary to conduct a balance of interests between the
right to privacy and the right of the public to use certain information that
serves its interest. In about 10% of all cases where banking information is
requested the tax administration goes to the court for the application of a
sanction against a bank refusing to provide the information. In 99% of these
cases court applies a sanction and orders the information to be provided.
There was no case during the reviewed period where obtaining banking
information for EOI purposes was subject to a court dispute.
230. Provision of simple banking information such as bank account state-
ments which is not subject to dispute takes on average three weeks. If the
provision of information involves negotiation it takes significantly longer and
might take several months. All requests for banking information for domes-
tic and exchange of information purposes are handled by a specialised unit
within the Intelligence Department which is staffed with two employees. This
unit handles about 3 500 domestic and EOI requests per year. Considering the
demanding nature of the exercise of access powers in respect of banks, Israel
should devote more resources to this process.
231. Israel received 27 requests for banking information during the
period under review. The requested information has not yet been provided
in 10 cases. All these requests are considered by Israel competent authority
as pending. Out of the 10 pending cases seven are awaiting provision of the
requested documentation from banks, two are pending clarification from the
requesting jurisdiction and one request is being reviewed by the competent
authority. The average response time (excluding pending requests) in civil
cases was 222 days and in criminal cases 57 days.
232. Two peers raised concerns about Israels ability to provide banking
information especially in cases where the transactional or know your cus-
tomer documentation is requested. As described above, access to banking
information for civil tax purposes is subject to restrictive condition in respect
of proportionality between the requested information and its importance for
tax proceedings which needs to be demonstrated to the bank. This condition
21. Supreme Court decision Civil Appeal, 1917/92 Jacob Skholer vs. Bank Hamizrachi.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 79
also leads to restriction in the amount and types of information which banks
agree to provide to the tax administration. The more voluminous and spe-
cialised the information requested is the more valid tax purpose is required.
The need to demonstrate proportionality of the request to the bank requires
resources on the side of the tax administration and is time consuming. It also
includes the necessity to provide enough information to the bank to substanti-
ate the request which further delays provision of the requested information in
the context of exchange of information and might lead to requests for exces-
sive clarifications.
233. In order to address these issues the Israel Tax Authority is currently
discussing a new procedure for obtaining information from banks with the
Bank Union. Nevertheless, Israel is recommended to ensure that the compe-
tent authority can legally obtain all requested banking information regardless
of the type of the information or its volume and that the information is pro-
vided by banks in a timely manner.
Professional privileges
234. Section 235B of the Income Tax Ordinance empowers the assessing
officer to obtain information from advocates. The advocates must deliver any
document in his possession to the assessing officer, enable him to examine
and seize any of the delivered documents and allow him to perform any other
act in respect of the said document. The assessing officer is empowered to
use all powers available to him under the ITO. These provisions of the ITO
specifically override the provisions of Advocates Law 5721-1961. However,
the advocate must not deliver the documents if he claims the document is
privileged. A document that includes a professional secret is considered
a privileged document (s. 235A). The advocate must deliver the document
demanded by the assessing officer and if he claims that the document is privi-
leged then the assessing officer must not inspect the document and the claim
of the advocate is decided by the court in accordance with the procedure
prescribed in sections 235C and 235D of the ITO. There was one such case
during the period under review where a document requested for tax purposes
was claimed by the advocate as a privileged document. The court ruled that
the requested document did not represent a confidential communication
related to the provision of legal advice and therefore it should be disclosed
to the assessing officer. There was no such case in the context of exchange
of information. However, the same procedure as in domestic cases would be
followed.
235. Section 235A of the ITO defines professional secret as, communi-
cation between a client and an advocate, whether oral or written, which is
substantially connected to the professional service rendered by the advocate
to the client, including records prepared by the advocate for his own use, on
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
80 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION
condition that they are substantially connected to the said professional ser-
vice. Professional service is limited to services provided in the advocates
capacity as an advocate, and does not extend to services rendered in another
capacity.
236. Members of the Israeli Bar Association, their staff members or
representatives are obliged to maintain confidentiality on all the facts of
which they have learnt in connection with provision of their legal services
(s. 90 of the Bar Association Law, 1961). They can only be released from
this obligation of maintaining confidentiality including for the purpose of
judicial proceedings, by their clients declaration. However, the members
of Bar Association or their representatives are still obliged to maintain con-
fidentiality if it is in the clients interest (s. 19 of the Bar Association Rules
(Professional Ethics), 1986). Information which is specifically not covered
by professional privilege is the identity of the client, the fact that legal advice
was sought and information regarding whether or not an attorney has in his
possession a specified document. Additionally, advice intended to facilitate
commission of a crime and the content of legal services (specifically, a con-
tract is not privileged, although the correspondence relating to it is) are not
privileged.
237. In practice, the assessing officer requests information from the
taxpayer who is obliged to provide the requested information. Cases where
the relevant information is held only by an advocate or other admitted legal
representative are according to Israels authorities not frequent in practice.
Although there were about 30 cases where information was obtained from
a companys lawyers or accountants none of them claimed to be operating
as admitted legal representatives and therefore covered by legal professional
privilege. Accordingly, there was no case where a person refused to provide
the requested information because of professional privilege.
Tax secrecy
238. Sections 231 to 235 of the ITO set out secrecy provisions concerning
the information obtained by Israel Tax Authority. Section 234 states that,
if a person has possession or control of documents, information, returns,
assessment lists or their copies, which relate to the income of a person or
to a particular of his income, and if he at any time communicates or tries to
communicate aforesaid information or any contents of those documents to a
person to whom the Minister of Finance did not permit him to communicate
it, or if he communicates it not for purposes of this Ordinance, then he shall
be liable to six months imprisonment or to a fine. However, these secrecy
provisions are specifically overridden for disclosing information to an author-
ised office of the reciprocating state with whom an agreement has been given
effect as per provisions of section 196 (section 197 ITO).
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 81
Determination and factors underlying recommendations
Phase 1 determination
The element is in place, but certain aspects of the legal implementation
of the element need improvement.
Factors underlying
recommendations Recommendations
Israels access powers for the purpose
of exchange of information under
international tax agreements are not
provided for explicitly, in all cases, and
are only applicable to requests made
under double tax conventions.
Israel should ensure that its
competent authority has the power
to obtain all relevant information
pursuant to requests under all
exchange of information agreements
(regardless of their form).
The tax authorities powers to obtain
information from new immigrants,
veteran returning residents and the
trustees of foreign resident trusts,
having a trustee resident in Israel, in
respect of foreign source income are
inadequate.
Israel should ensure that its authorities
have powers to obtain information
from new immigrants, veteran
returning residents and trustees of
foreign resident trusts which might be
subject of an information request from
its EOI partners.
Phase 2 rating
Partially compliant.
Factors underlying
recommendations Recommendations
Access powers in respect of banking
information requested for civil tax
purposes are not sufficiently effective
to ensure that all banking information
regardless of its type and difficulty to
obtain is provided in a timely manner.
Israel should ensure that the
competent authority can obtain all
requested banking information in a
timely manner.
B.2 Notification requirements and rights and safeguards
The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the
requested jurisdiction should be compatible with effective exchange of information.
Not unduly prevent or delay exchange of information (ToR B.2.1)
239. The Terms of Reference provide that rights and safeguards should not
unduly prevent or delay effective exchange of information. For instance, noti-
fication rules should permit exceptions from prior notification (e.g. in cases
in which the information request is of a very urgent nature or the notification
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
82 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION
is likely to undermine the chance of success of the investigation conducted
by the requesting jurisdiction).
240. Israels law does not require the tax authorities to notify taxpayers or
third parties of an exchange of information request, or when the tax authority col-
lects information from a third party to fulfil an exchange of information request.
241. As explained in Section B.1, Israels tax authorities can approach
persons holding relevant information to provide it to the assessing officer
without prior notice (s. 135-145 ITO). In certain circumstances, however, the
law prescribes that the assessing officer specifies that notice be given in order
to give the person time needed to provide the requested information (s. 135(1),
s. 135A(a), s. 136, s. 137-140 ITO). The time limits, within which informa-
tion must be provided as stipulated by law are part of the normal procedures
for requesting information from taxpayers in particular circumstances and
are not specific to EOI. A notice to the information holder contains only
a description of the requested information and the name of the requesting
jurisdiction. No other information such as the request itself or any supporting
documentation is disclosed to the information holder. However the proce-
dure for obtaining banking information might in certain cases require the
tax administration to explain to the bank further grounds why the requested
information is relevant for tax purposes (see section C.3).
242. The Income Tax Ordinance does not allow any appeal rights against
the authorities powers to gather information. However, Part IX of the ITO
grants appeal rights to taxpayers who dispute tax assessments. Article 253
of the Civil Law order regulation (1984) grants appeal rights to taxpayers to
apply to the court against any request, decision or action of authorities. These
rights are available to taxpayers in domestic cases and can be equally used to
oppose requests for exchange of information. Launching an appeal does not
have a deferral effect. No further information other than that provided in the
notice to information holder is provided to the taxpayer on foot of an appeal.
These appeal rights are normal and are available to defend against any unau-
thorised use of powers by authorities. There was no case during the period
under review where an action taken to obtain and provide the requested
information was appealed.
Determination and factors underlying recommendations
Phase 1 determination
The element is in place.
Phase 2 rating
Compliant.
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COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 83
C. Exchanging Information
Overview
243. Jurisdictions generally cannot exchange information for tax purposes
unless they have a legal basis or mechanism for doing so. In Israel, the legal
authority to exchange information derives from double tax conventions as
well as from domestic law. This section of the report examines whether Israel
has a network of information exchange that would allow it to achieve effec-
tive exchange of information in practice.
244. In Israel, the legal authority to exchange information is derived
from double tax conventions upon their signature by the Minister of Foreign
Affairs and upon their ratification by the Knesset. DTCs are given effect
by order of the Minister of Finance. International agreement prevails when
in conflict with domestic legislation concerning issues covered by the
international agreement in respect of income taxes including exchange of
information.
245. Israel has a developed network of bilateral agreements that provide
for exchange of information in tax matters. This network currently covers
54 jurisdictions through double tax conventions (DTCs). All DTCs are in
force with the exception of DTCs with the Former Yugoslav Republic of
Macedonia (FYROM), Malta and Panama.
246. Israels DTCs cover most of its major trading partners including
almost all EU member states, 16 of the G20 members almost half of the
Global Forum members and all, except for four, OECD members. Israel has
an ongoing treaty negotiation programme. In addition, Israel is currently
updating its older agreements by establishing amendments to the DTC and
Protocols to bring the exchange of information articles to the international
standard.
247. Out of the 54 signed DTCs, five DTCs (Denmark, FYROM, Georgia,
Malta and Panama) contain the full text of Article 26 of the OECD Model
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
84 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
Tax Convention. Due to various deficiencies, eight
22
of the 54 DTCs do not
provide for exchange of information consistent with the standard.
248. Israels agreements affording double taxation relief are given effect
by s. 196 of the ITO. Although Israels law does not explicitly stipulate
information gathering powers of the tax authority in relation to exchange
of information based on international agreements, the wording shall have
effect in relation to income tax is interpreted by Israeli authorities as includ-
ing authority to use information gathering powers in relation to exchange
of information. Further, Israel has never encountered any problem in this
respect.
249. Israel cannot give effect in its domestic law to international agree-
ment solely for the purpose of exchange of information. As a consequence
Israel cannot conclude any TIEA or other international agreement including
the Convention on Mutual Administrative Assistance in Tax Matters that
cover administrative assistance. This fact limits possibility of Israel and its
partners to enter into agreements solely allowing exchange of information
for tax purposes.
250. All of Israels DTCs contain confidentiality provisions to ensure
that the information exchanged will be disclosed only to authorised persons.
This is also ensured in practice. Consequently there was no case where
information was unlawfully disclosed during the period under review. All
Israeli DTCs ensure that the contracting parties are not obliged to provide
information which would disclose trade, business, industrial, commercial or
professional secrets or information which is the subject of legal professional
privilege. All but two DTCs do not oblige the parties to provide information
the disclosure of which would be contrary to public policy (ordre public).
23
251. The Israeli Ministry of Finance and the tax administration designated
by the Ministry are the Israeli competent authority for EOI purposes (s. 3(1)).
The EOI Unit in the International Tax Division of the Israel Tax Authority is
practically handling all incoming and outgoing requests. There are no legal
restrictions on the ability of the competent authority to respond to requests
within 90 days of receipt by providing the information requested or by pro-
viding an update on the status of the request. Israel received 139 requests
over the period 1 July 2010 to 30 June 2013. Including the time taken by the
requesting jurisdiction to provide additional information, the requested infor-
mation was provided within 90 days, 180 days and within one year in 32%,
40% and 54% of the time respectively
24
. Israels response time might limit
22. DTCs with Germany, Jamaica, Luxembourg, the Netherlands, Singapore, South
Africa, Switzerland and the United Kingdom.
23. The agreements with the United Kingdom and with Sweden.
24. These figures are cumulative.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 85
effectiveness of exchange of information. Israel is therefore recommended
to take measures ensuring that deadlines for obtaining and providing the
requested information are respected.
252. In general, Israel has in place organisational processes to ensure
effective exchange of information. However, there are certain important areas
which need improvement in order to ensure that information is provided in a
timely manner in all cases (see section C.5). Israel should also provide status
updates in cases where it is not in a position to meet the 90 day deadline.
C.1 Exchange-of-information mechanisms
Exchange of information mechanisms should allow for effective exchange of information.
253. The DTCs signed by Israel are given effect by section 196 of the ITO.
Based on the ITO, international treaties override any contradictory domestic
laws concerning issues covered by the international agreement in respect of
income taxes including exchange of information.
254. Israel has signed 54 DTCs. All DTCs are in force with the exception
of DTC with the FYROM, Malta and Panama.
255. Section 196 of the ITO does not allow Israel to conclude international
agreements solely for the purpose of administrative assistance in tax matters.
It is required that such agreements must also afford double taxation relief. As
a consequence, Israel has not yet concluded any Tax information exchange
agreement (TIEA) or any other instrument providing solely for the admin-
istrative assistance in tax matters.
Foreseeably relevant standard (ToR C.1.1)
256. The international standard for exchange of information envisages
information exchange on request to the widest possible extent, but does not
allow speculative requests for information that have no apparent nexus to
an open inquiry or investigation. The balance between these two competing
considerations is captured in the standard of foreseeable relevance. It does
not allow fishing expeditions.
257. Out of 54 Israeli DTCs, 47 provide for the exchange of information
that is necessary for carrying out the provisions of the agreement or of the
domestic laws of the Contracting States concerning taxes covered by the
agreement. As such, the term necessary is recognised in the commentary to
Article 26 (Exchange of Information) of the OECD Model Tax Convention to
allow for the same scope of exchange as does the term foreseeably relevant.
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86 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
Two DTCs use the term pertinent.
25
The Israeli authorities indicate that the
term pertinent is interpreted in a manner that allows for exchange of infor-
mation that is in line with the standard of foreseeable relevance. Five most
recently negotiated DTCs employ the term of foreseeably relevant.
258. Israels DTCs with the Netherlands and South Africa contain addi-
tional language, providing that competent authorities of the states shall
exchange information which authorities have in proper order at their disposal
as is necessary for carrying out the provisions of the Convention. These
provisions suggest that Israel may not therefore be able to exchange all infor-
mation consistent with the foreseeably relevant standard. However, the Israeli
authorities have advised that they use their access powers to obtain informa-
tion requested by the Netherlands and South Africa. Similar clarification is
given by the authorities of the Netherlands
26
and South Africa.
27
259. In practice, Israel implements the foreseeable relevance criteria in
line with the standard. Information required by Israel to be included in the
request follows Article 5 paragraph 5 of the Model TIEA and its commentary.
Israel also provided information based on group requests in several cases
over the reviewed period. Israel does not require specific identificators once
information provided by the requesting jurisdiction allows identification of
the taxpayer concerned. A combination of name and address or name and
date of birth or passport number is sufficient to identify the taxpayer. Most
cases when identification of the taxpayer was not possible related to persons
with common names and without further identification or where the iden-
tity information provided by the requesting jurisdiction does not generate
any matches in the tax database. If identity of the person cannot be estab-
lished through the tax database Israel uses other sources such as Registry
of Citizens or public sources to identify the person. Israel requires that the
statement of the information sought and the tax purpose of the request should
contain enough information to allow the assessing officer to understand
purpose of the request and information sought so that the relevant informa-
tion can be identified and effectively obtained. Supporting documentation is
not required to be provided if the background information contained in the
request is satisfactory to establish the purpose of the request. If the requested
information is complex and requires co-ordination of several information
gathering measures related to several taxpayers or information sources more
background information is needed to properly understand the situation so that
the relevant information can be identified and proper information gathering
25. DTC with US (signed 1994) and DTC with Ethiopia (signed 2004).
26. Global Forum Peer Review Report (Combined: Phase 1 and Phase 2), the
Netherlands, paragraph 323.
27. Global Forum Peer Review Report (Combined: Phase 1 and Phase 2), South Africa,
paragraph 194.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 87
measures taken. If statements under letter f) and g) of Article 5 paragraph 5
of the Model TIEA are provided Israel does not require further evidence
to substantiate them unless evidence of contrary is readily available. If the
holder of the information is not known Israel will try to identify the holder
through its internal sources and take reasonable steps to gather the informa-
tion nevertheless.
260. One peer indicated that Israel requests too many clarifications in
respect of tax purpose for which the information is requested and that Israel
requires specific information identifying the taxpayer under investigation
such as the passport number of an individual. However, it has not been con-
firmed that Israel requests excessive clarifications regarding identification
of the taxpayer or purpose of the request. Typically only a name common to
several taxpayers was provided and the information at the disposal of the tax
administration did not suffice to identify the person under investigation. As
described above Israel requests explanation of relevance of the information in
line with the standard as described in Commentary to Article 5 paragraph 5
of the Model TIEA and no specific identificator of the taxpayer is required.
If the required information is not provided Israel tries to substitute it with
information already at its disposal. Only when such information cannot be
substituted clarification is requested.
261. Israel sought clarifications in eight cases in 2011, in 18 cases in 2012
and in nine cases in 2013 (25% of all requests received over the three years).
Clarifications related to the tax purpose of the requested information, identi-
fication of the taxpayer or asked for translation of a request into English (see
further section C.5.2). Although the requested clarifications were in line with
the standard, in 19 cases (14% of received requests) clarification has not yet
been provided and requests are considered as pending.
262. Israel has not declined any request over the period under review based
on the fact that it does not meet the foreseeable relevance criteria. However
clarifications were requested in 25% of cases and 14% of received requests
are pending clarification from the requesting jurisdiction. Considering the
percentage of requests where clarification is needed Israel is encouraged to
continue monitoring consistent application of the foreseeable relevance criteria
and to ensure that reasons for clarification are in all cases properly communi-
cated to the requesting jurisdiction (see further section C.5.2).
In respect of all persons (ToR C.1.2)
263. For exchange of information to be effective it is necessary that
the obligation to provide information is not restricted by the residence or
nationality of the person to whom the information relates or by the resi-
dence or nationality of the person in possession or control of the information
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
88 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
requested. For this reason the international standard for exchange of informa-
tion envisages that EOI mechanisms will provide for exchange of information
in respect of all persons.
264. Twenty of Israels DTCs do not contain a specific reference in the
EOI Article regarding exchange of information not being restricted by
Article 1 (Persons covered) of the respective agreements. However, in prin-
ciple, the absence of this specific provision does not restrict the exchange of
information as long as the agreement allows for the exchange of informa-
tion for carrying out the provisions of the domestic laws of the Contracting
States, as the domestic laws apply to non-residents also. Further, tax treaties
with the Netherlands and South Africa provide for exchange of information
that is necessary for the carrying out of the provisions of the Convention, in
particular for the prevention of the fraud, and for the administration of the
statutory provisions against legal avoidance concerning taxes covered by the
Convention. Israels DTCs with Germany and Switzerland limit the exchange
of information to that necessary for carrying out the provisions of the conven-
tion Therefore, under these four DTCs information concerning non-residents
might not be exchanged and they should be renegotiated to provide for
exchange of information in respect of all persons. It is noted that Israel and
Switzerland have already started negotiations aiming at updating their DTC
to align it with the standard.
265. In practice, no issue restricting exchange of information in respect
of the residence or nationality of the person to whom the information relates
or of the holder of information has been indicated by Israels authorities or
peers.
Obligation to exchange all types of information (ToR C.1.3)
266. Jurisdictions cannot engage in effective exchange of information if
they cannot exchange information held by financial institutions, nominees
or persons acting in an agency or a fiduciary capacity, as well as owner-
ship information. Both the OECD Model Convention (Article 26(5)) and the
OECD Model TIEA (Article 5(4)), which are primary authoritative sources of
the standards, stipulate that bank secrecy cannot form the basis for declining
a request to provide information and that a request for information cannot be
declined solely because the information is held by nominees or persons acting
in an agency or fiduciary capacity or because the information relates to an
ownership interest.
267. Except for DTCs with Denmark, FYROM, Georgia, Malta and
Panama which were signed after September 2009 none of Israeli 49 DTCs con-
tain wording akin to Article 26(5) of the OECD Model Convention. However,
the absence of such a provision in Israels DTCs does not automatically create
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 89
restrictions on exchange of bank information. Exchange of information based
on such DTC becomes restricted in line with the standard only if domestic
laws in one of the parties do not allow exchange of information in the scope of
Article 26(5) of the OECD Model Tax Convention.
268. As stated in section B.1 of this report Israels domestic law does
not contain legal restrictions in respect of access to banking information.
Nevertheless, for some of Israels partners which have domestic restrictions
on access to information the absence of a provision akin to Article 26(5) of
the OECD Model Tax Convention means that these agreements do not estab-
lish an obligation to exchange all types of information. It is particularly the
case with Luxembourg, Singapore
28
and Switzerland.
269. Luxembourgs domestic bank secrecy rules restrict exchange of
information based on all DTCs signed prior to March 2009, including DTCs
with Israel. Similarly, exchange of information with Switzerland based on
DTCs signed prior to October 2010 is limited by its domestic bank secrecy
rules.
270. The DTCs with the Netherlands, South Africa, Sweden, and the
UK (as well as those with Germany and Switzerland which are not to the
standard) include language, noting that exchange of information is restricted
to information which is at their disposal under their respective taxation
laws in the normal course of administration or similar. This wording does
not limit Israels ability to respond to a request from these jurisdictions, as
Israel regards all information they can obtain by using their access powers as
information available under its taxation laws and in proper order at their
disposal. It is noted, however, that while this is not an issue for Israel it may
impose a restriction on the other jurisdictions ability to respond to a request,
as they may interpret this language more restrictively. This is the case with
the UK. Therefore, Israels DTC with the UK is not in line with the standard.
271. The Protocol to the Israels DTC with the Netherlands explicitly
states that the obligation to exchange information does not include informa-
tion obtained from banks or from financial institutions assimilated thereto or
equivalent institutions. Due to this express limitation with regard to banking
information, the DTC with the Netherlands is not in line with the interna-
tional standard.
272. Although the number of Israels DTCs which are not in line with
the standard is relatively low, these DTCs cover Israels important trading
28. Singapore amended its domestic legislation in November 2013 with a view to
being able to exchange information to the international standard under all of its
DTCs on the basis of reciprocity. This legislation has not yet been reviewed by
the Global Forum.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
90 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
partners. It is therefore recommended that Israel updates these DTCs to
include Article 26(5) of the OECD Model Tax Convention and to allow
exchange of information in line with the international standard.
273. In practice, Israel has never declined a request because the informa-
tion was held by a bank, other financial institution, nominees or persons
acting in an agency or fiduciary capacity or because the information related
to an ownership interest. This has been confirmed by peers. The Israel Tax
Authority is not required to obtain a court order in order to request informa-
tion from banks if the requested information relates to civil tax procedures.
A court order is required when bank information is requested for criminal tax
purposes. As described in section B.1.5, limitations on the exercise of access
powers in respect of banks for the purpose of civil tax proceedings restricts
effective exchange of bank information. This has also been confirmed by two
peers and Israel should take steps to address this issue.
Absence of domestic tax interest (ToR C.1.4)
274. The concept of domestic tax interest describes a situation where a
contracting party can only provide information to another contracting party
if it has an interest in the requested information for its own tax purposes. A
refusal to provide information based on a domestic tax interest requirement
is not consistent with the international standard. Jurisdictions must be able
to use their information gathering measures even though invoked solely to
obtain and provide information to the requesting jurisdiction. This is spe-
cifically stated in both the OECD Model Convention (Article 26(4)) and the
OECD Model TIEA (Article 5(2)), which are primary authoritative sources of
the Global standard for EOI.
275. Only five Israeli DTCs contain the equivalent of paragraph 4 of
Article 26 of the OECD model convention. The most recent five DTCs
29

which were signed after September 2009 do include express provision
relating to the non-application of the principle of domestic tax interest. In
addition, the Israeli authorities advise that all DTCs are interpreted by Israel
as also allowing access to all information in the absence of domestic tax
interest even if there is no explicit reference to that principle in the respec-
tive agreement. In practice Israel does not exercise reciprocity on this basis
and therefore does not question whether a requesting party has the require-
ment of a domestic tax interest. No issue has been reported by peers in this
respect. There was also no case during the period under review where request
was declined because of absence of domestic tax interest. As discussed in
section B.1 of the report, tax authorities are obligated to give effect to the
provisions of tax treaty, however there is a potential ambiguity in relation to
29. DTCs with Denmark, FYROM, Georgia, Malta and Panama.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 91
some domestic law provisions with regard to authorities powers to obtain
information for EOI purpose.
276. A domestic tax interest requirement may also exist in some of
Israelis partner jurisdictions. In such cases, the absence of a specific provi-
sion requiring exchange of information unlimited by domestic tax interest
will serve as a limitation on the exchange of information which can occur
under the relevant agreement. Based on the peer reviews conducted so far,
domestic tax interest restricts exchange of information in respect to the DTCs
with Singapore and Jamaica. Therefore, it is recommended that Israel contin-
ues its programme of renegotiation of DTCs including to incorporate wording
in line with Article 26(4) of the OECD Model Tax Convention.
Absence of dual criminality principles (ToR C.1.5)
277. The principle of dual criminality provides that assistance can only be
provided if the conduct being investigated (and giving rise to an information
request) would constitute a crime under the laws of the requested jurisdic-
tion if it had occurred in the requested jurisdiction. In order to be effective,
exchange of information should not be constrained by the application of the
dual criminality principle.
278. There are no dual criminality provisions in any of Israelis DTCs.
Accordingly, there has been no case when Israel declined a request because
of a dual criminality requirement as has been confirmed by peers.
Exchange of information in both civil and criminal tax matters
(ToR C.1.6)
279. Information exchange may be requested both for tax administration
purposes and for tax prosecution purposes. The international standard is not
limited to information exchange in criminal tax matters but extends to infor-
mation requested for tax administration purposes (also referred to as civil
tax matters).
280. As noted previously (see Part C.1.1 of this report), four of Israels
DTCs provide for the exchange of information for carrying out the provisions
of the convention and not for administering domestic laws. These agreements
have the potential to limit the EOI to information foreseeably relevant for the
purposes of civil tax matters only.
281. The confidentiality provisions in 13 agreements do not expressly
provide for disclosure of information received to the authorities which are
involved with the prosecution of tax matters. Israel advises that absence
of this express provision does not limit the sharing of information with the
authorities prosecuting tax matters and it places no restriction on the use of
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92 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
information by the requesting jurisdiction as far as such disclosure is consist-
ent with the international standard with regard to confidentiality. It further,
clarified that non-availability of these express provisions is not interpreted
so as to decline providing information in criminal tax matters. This has been
confirmed in practice since there has been no case over the period under
review where Israel declined to provide information because the requested
information cannot be provided for criminal tax purposes. Israel advises that
an assessing officer in Israel may transfer information to an investigating
assessing officer for opening a criminal investigation.
282. In practice, Israel requires an indication from the requesting jurisdic-
tion whether information is sought for criminal or civil tax purposes when
banking information is requested. If information is requested for criminal
tax purposes the tax administration uses a court order to obtain the requested
information (see further section B.1.5). About 5% of received requests related
to criminal tax proceedings. No peer indicated concerns regarding the
exchange of information relevant to criminal tax proceedings.
Provide information in specific form requested (ToR C.1.7)
283. There are no restrictions in Israels domestic laws that would prevent
it from providing information in a specific form, so long as this is consistent
with its own administrative practices. Peer inputs indicate that Israel provides
the requested information in adequate form and no issue in this respect has
been reported.
In force (ToR C.1.8)
284. Exchange of information cannot take place unless a jurisdiction has
exchange of information arrangements in force. Where such arrangements
have been signed, the international standard requires that jurisdictions must
take all steps necessary to bring them into force expeditiously.
285. In order to bring the exchange of information agreement into force it
must be given notice by order of the minister of finance upon their signature
and ratification. Out of the 54 DTCs that Israel has concluded, 51 are in force
as of 8 August 2014. The DTCs with FYROM, Malta and Panama which are
not yet in force
30
were signed after July 2011. It is recommended that Israel
brings these DTCs into force expeditiously.
286. The process of bringing agreements into force is rather straightfor-
ward. Agreement bill is signed on behalf of the government by the Minister
30. DTCs signing dates: FYROM (23 Aug 2012), Malta (28 July 2011) and Panama
(27 July 2011).
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COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 93
of Foreign Affairs. Subsequently, the treaty is subject to ratification by the
Knesset. In order for the treaty to come into effect in Israel the Minister of
Finance is required to give notice by an order. This order is published in the
Official Gazette (Reshumot). Most of the treaties are brought into force
expeditiously. However, in some cases time between signature of the DTC
and its coming into force was relatively long. Nine agreements were brought
into force 36 months after their signature. Bringing a treaty into force
requires successful ratification process in both treaty countries. Nonetheless,
considering the comparative length of the period between signature of the
agreement and its coming into force, it is recommended that Israel should
take necessary measures to bring all its exchange of information agreements
into force expeditiously.
In effect (ToR C.1.9)
287. For information exchange to be effective, the parties to an EOI
arrangement need to enact any legislation necessary to comply with the terms
of the arrangement.
288. Exchange of information agreements are given effect in Israel by s. 196
of the ITO. Once given effect an agreement overrides domestic Israeli laws.
Although the provision of the ITO does not explicitly stipulate that agreements
shall also have effect in relation to exchange of information, Israeli authori-
ties interpret the wording in relation to income tax as including exchange
of information. This has also been confirmed in practice. There was no case
during the period under review where Israel was not able to exercise its access
powers due to unclear or limited effect of DTCs in Israels law. Nevertheless,
legal amendment of the ITO giving effect to international agreements con-
cluded solely for administrative assistance and clarifying use of access powers
for exchange of information purposes was submitted to the Knesset.
Determination and factors underlying recommendations
Phase 1 determination
The element is in place, but certain aspects of the legal implementation
of the element need improvement.
Factors underlying
recommendations Recommendations
Israels access powers for the purpose
of exchange of information under
international tax agreements are not
provided for explicitly, in all cases, and
are only applicable to requests made
under double tax conventions.
Israel should ensure that its
competent authority has the power
to obtain all relevant information
pursuant to requests under all
exchange of information agreements
(regardless of their form).
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94 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
Phase 1 determination
The element is in place, but certain aspects of the legal implementation
of the element need improvement.
Factors underlying
recommendations Recommendations
Eight of Israels DTCs are not in line
with the international standard.
Israel should continue its programme
of renegotiation of DTCs to
incorporate wording in line with the
OECD Model Tax Convention.
In some cases time taken by Israel to
bring its signed EOI agreements into
force was more than 36 months.
Israel should take necessary
measures to bring its exchange of
information agreements into force
expeditiously.
Phase 2 rating
Partially compliant.
C.2 Exchange-of-information mechanisms with all relevant partners
The jurisdictions network of information exchange mechanisms should cover
all relevant partners.
289. Ultimately, the international standard requires that jurisdictions
exchange information with all relevant partners, meaning those partners
who are interested in entering into an information exchange arrangement.
Agreements cannot be concluded only with counterparties without eco-
nomic significance. If it appears that a jurisdiction is refusing to enter into
agreements or negotiations with partners, in particular ones that have a rea-
sonable expectation of requiring information from that jurisdiction in order
to properly administer and enforce its tax laws, this may indicate a lack of
commitment to implement the standards.
290. Israels network of DTCs encompasses a wide range of counterpar-
ties, including
all of its five major trading partners
almost all EU member states;
16 of the G20 members;
almost half of the Global Forum members; and
except for four all OECD members.
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COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 95
291. Comments were sought from Global Forum member jurisdictions in
the course of the preparation of this report. One jurisdiction has informed
to have approached Israel and indicated its interest in entering into a TIEA.
However, section 196 of ITO does not allow Israel to conclude international
agreements solely for the purpose of exchange of information. As a conse-
quence Israel cannot conclude any TIEA or other international agreement
covering solely administrative assistance. This fact limits possibility of Israel
and its partners to enter into agreements solely for the purposes of admin-
istrative assistance in tax matters. Therefore, it is recommended that Israel
amends its domestic law to allow it to conclude such agreements and enter
agreements for exchange of information (regardless of their form) with all
partners interested in having such an agreement. An amendment of the ITO
addressing the issue was submitted to the Knesset on 29 January 2014 and
passed first reading on 10 February 2014. The amendment is currently being
discussed in Knesset committees. The Israeli Authorities indicated that once
the amendment is in force Israel is ready to conclude EOI agreements regard-
less of their form and will quickly proceed with accession to the Multilateral
Convention on Administrative Assistance in Tax Matters.
292. The Israeli authorities have an ongoing programme of establishing
agreements and revising agreements where necessary in order to bring them
to standard. This revision includes DTCs that Israel interprets as meeting
the standard. No peers have reported that Israel declined to establish an EOI
agreement with a jurisdiction seeking the same.
Determination and factors underlying recommendations
Phase 1 determination
The element is in place, but certain aspects of the legal implementation
of the element need improvement.
Factors underlying
recommendations Recommendations
Israel has been approached by at
least one jurisdiction to negotiate
a TIEA, however, Israels law does
not allow Israel to give effect to
agreements solely for the purpose of
exchange of information.
Israel should enter into agreements
for exchange of information for tax
purposes (regardless of their form)
with all relevant partners, meaning
those partners who are interested in
entering into an information exchange
arrangement with it.
Phase 2 rating
Largely compliant.
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96 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
C.3 Confidentiality
The jurisdictions mechanisms for exchange of information should have adequate
provisions to ensure the confidentiality of information received.
Information received: disclosure, use, and safeguards (ToR C.3.1)
293. Governments would not engage in information exchange without the
assurance that the information provided would only be used for the purposes
permitted under the exchange mechanism and that its confidentiality would
be preserved. Information exchange instruments must therefore contain confi-
dentiality provisions that spell out specifically to whom the information can be
disclosed and the purposes for which the information can be used. In addition
to the protections afforded by the confidentiality provisions of information
exchange instruments, jurisdictions with tax systems generally impose strict
confidentiality requirements on information collected for tax purposes.
294. All Israelis DTCs have confidentiality provisions to ensure that the
information exchanged will be disclosed only to persons authorised by the
agreements. While wording of the respective articles might slightly vary, its
provisions contain all of the essential aspects of Article 26(2) of the OECD
Model Tax Convention.
295. Israeli tax law requires officials, taxpayers and third parties to keep
confidential all information concerning other persons which they learned
in the course of the tax procedure (ss.231-235 ITO). This confidentiality
obligation covers all types of information obtained in connection with tax
administration, including information obtained in the course of international
co-operation. Information obtained for tax purposes can also be used for
revenue statistics, in bankruptcy proceedings and can be provided to the
National Insurance Institute. Notwithstanding this, information received
from other jurisdictions under a legal instrument will be treated in line with
these instruments as confidentiality provisions of these instruments prevail
over the ITO or any other law in Israel (s. 196 ITO). Penalties for breaches of
confidentiality are stipulated by the Income Tax Ordinance. A person who
breaches confidentiality is liable to six months imprisonment or to a fine of
NIS 12 900 (EUR 2 580) (s. 234). No breach of confidentiality was encoun-
tered during the last three years neither in a domestic nor in an exchange of
information context.
296. Detailed rules on practical application of confidentiality obligations
are contained in income tax circular no. 85/24 and executive provision no.
8/89. These rules are also confirmed in Income Tax Circular No. 17/2003 on
Information Exchange Between Treaty Partners (point 6). These rules are
consistent with the standard and ensure that information obtained during tax
proceedings is kept confidential.
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297. Information obtained from a treaty partner including the EOI request
is never disclosed to the taxpayer unless such disclosure is necessitated by tax
court proceedings or the like.
In practice
298. EOI requests received from the requesting jurisdiction are han-
dled only by the authorised persons within the EOI Unit. In cases when
the requested information cannot be directly obtained by the EOI Unit, the
assessing officer is provided by the EOI Unit with a standard letter containing
information on the legal basis of the request, a description of the requested
information and background information necessary for providing an adequate
response. All persons dealing with information obtained from treaty partners
are bound by confidentiality rules detailed above and in cases of breach
sanctions will apply. Nevertheless, the procedure for obtaining banking
information which involves demonstration of proportionality of the requested
information to a bank might lead in certain cases, where voluminous or very
specific information is required, to disclosure of information which is not
necessary for gathering it. This issue should be monitored by Israel so that
only a description of the requested information and the legal basis for the
request is provided to holders of banking information.
299. Information received by the EOI Unit is scanned and saved in the
respective folder of the internal EOI Unit database. Access powers to this
database and to the EOI database are granted by the director of International
Tax Division and are restricted to officials of the EOI Unit. Access to these
databases is by an individual login and password allowing identification of
the person accessing it. Hardcopies of EOI letters and supporting documenta-
tion are kept in EOI Units archive placed in a locked cabinet with restricted
access. Entry to the tax authority premises is restricted, protected by an elec-
tronic code and a security guard is present at all times.
300. Information obtained in response to Israels requests is kept in the
respective taxpayers file and can be accessed only by the authorised assess-
ing officer responsible for the respective taxpayers assessment. A taxpayers
file contains an indication of the source of information therefore information
obtained from treaty partners can be distinguished from information obtained
from domestic sources and is clearly identifiable.
All other information exchanged (ToR C.3.2)
301. The confidentiality provisions in Israelis domestic legislation and
DTCs do not draw a distinction between information received in response
to requests and information forming part of the requests themselves. As
such, these provisions apply equally to all requests, background documents
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98 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
to such requests, and any other communications between the requesting and
requested jurisdictions.
302. In practice, all types of information exchanged including official
communications between the Competent Authorities are protected in the
same way as described above. Measures taken by Israel ensure that con-
fidentiality of exchanged information is kept in line with the international
standard.
Determination and factors underlying recommendations
Phase 1 determination
The element is in place.
Phase 2 rating
Compliant.
C.4 Rights and safeguards of taxpayers and third parties
The exchange of information mechanisms should respect the rights and
safeguards of taxpayers and third parties.
Exceptions to requirement to provide information (ToR C.4.1)
303. The international standard allows requested parties not to supply
information in response to a request in certain identified situations. Among
other reasons, an information request can be declined if the requested
information would disclose confidential communications protected by attor-
ney-client privilege. Attorney-client privilege is a feature of the legal systems
of many countries.
304. However, communications between a client and an attorney or other
admitted legal representative are generally deemed confidential only to the
extent that the attorney or admitted legal representative is acting in that
capacity. When the definition of attorney privilege in domestic legislation of
the requested jurisdiction is broader, this does not constitute valid grounds for
refusing a request for information exchange. Consequently, when a lawyer is
acting as nominee shareholder, trustee, settlor, company director or under a
power of attorney to represent a company in its business affairs, a request for
exchange of information flowing from and related to such activities cannot
be refused on grounds of attorney privilege.
305. All Israeli DTCs contain a provision equivalent to the exemption in
article 26 (3) of the OECD Model Tax Convention allowing the state to refuse
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to exchange certain types of information, including that which would disclose
a trade, business, industrial, commercial or professional secret or trade pro-
cess. However, the term professional secret is not defined in the DTCs and
therefore, considering the definition provisions of the DTCs (see Article 3(2)
of the Model DTCs), this term would derive its meaning from the Israels
domestic laws. As discussed in Part B of this report, the definition of the term
professional secret in the ITO is consistent with the international standard.
306. Israeli DTCs with the UK and with Sweden do not contain express
safeguards that allow the contracting parties to decline to supply information
whose disclosure would be contrary to public policy. This is not consistent
with the international standard and it is recommended that Israel renegotiates
these two DTCs to bring them up to the standard.
307. In practice, there was no case during the period under review where
Israel requested information from admitted legal representatives for exchange
of information purposes. Consequently, there was no case where professional
privilege has been claimed to cover the requested information. Israel also
did not decline to provide the requested information during the period under
review because it is covered by legal professional privilege or any other pro-
fessional secret and no peer indicated any issue in this respect.
Determination and factors underlying recommendations
Phase 1 determination
The element is in place.
Phase 2 rating
Compliant.
C.5 Timeliness of responses to requests for information
The jurisdiction should provide information under its network of agreements
in a timely manner.
Responses within 90 days (ToR C.5.1)
308. There are no provisions in Israelis laws or DTCs pertaining to the
timeliness of responses or the timeframe within which responses should be
provided. As such, there appear to be no legal restrictions on the ability of
Israeli tax authorities to respond to EOI requests within 90 days of receipt by
providing the information requested or providing an update on the status of
the request.
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100 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
309. Israel received 139 requests related to direct taxes over the period
1 July 2010 to 30 June 2013. Requests are counted as per request letters
regardless of the number of entities to which the request relates. A request is
counted as one even if it relates to a number of entities and requests several
pieces of information. The following table shows the time needed to send
the final response to incoming EOI requests including the time taken by the
requesting jurisdiction to provide clarification (if asked).
Jul-Dec 2010 2011 2012 Jan-Jun 2013 Total Average
Number % Number % Number % Number % Number %
Total number of requests received* 20 100% 31 100% 59 100% 29 100% 139 100%
Full response**: <90 days 13 65% 12 39% 14 24% 5 17% 44 32%
16 16 52% 15 25% 9 31% 56 40%
17 19 61% 11 75 54%
>1 year+ 0 0% 7 23% 6 10% 0 0% 13 9%
Declined for valid reasons 0 0% 0 0% 0 0% 0 0% 0 0%
Failure to obtain and provide information
requested
0 0% 0 0% 0 0% 0 0% 0 0%
Requests still pending at date of review 3 15% 5 16% 25 42% 62% 51 37%
* Israel counts each written request from an EOI partner as one EOI request even where more than one
person is the subject of an inquiry and/or more than one piece of information is requested.
** The time periods in this table are counted from the date of receipt of the request to the date on which
the final response was issued. It does not take into account partial responses provided in the meantime
or any delays resulting from the need to seek clarifications of requests from a requesting jurisdiction.
310. As the table shows the number of requests dipped in 2011 but
increased in 2012 and was stable in the first 6 months of 2013. Most requests
were received from France, the United States, the United Kingdom, Belarus,
Ukraine and Canada (in order of significance). Most requests related to
accounting information (40 requests) and banking information (27 requests).
Israel sent 62 requests in 2011, 34 in 2012 and 38 in 2013 totalling 134
requests over the last three years. This means that the number of received and
sent requests is very balanced.
311. Israel provided the requested information within 90 days for 32%
of requests. Most of the requests where a response was not provided within
90 days related to requests for banking information (see section B.1.5),
complex requests requiring obtaining information from third parties or
the taxpayer or group requests. Response times also include time taken by
requesting jurisdictions to provide clarification requested by Israel. Response
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COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 101
times increased over the period under review as Israel was able to respond
65% of requests within 90 days in the second half of 2010 and 17% in the
first half of 2013. It has been confirmed by peers that the requested informa-
tion is rarely provided within 90 days. This negative trend might be partially
attributed to the rising complexity of requests and the increasing number of
received requests however Israel should take measures to address this.
312. In addition to the problems of obtaining banking information described
in section B.1.5, the main difficulties Israeli authorities are confronted with in
obtaining the requested information are related to identification of the holder
of the information and to persons which are not contactable. Some requests
relate to persons which cannot be identified since they are not contained in
any government registry in Israel. In some cases the requesting jurisdiction
does not provide enough information to identify an individual person in cases
where there are several persons with the same identificators as provided. In a
few cases the provided identification information was incorrect. In these cases
Israel tries to identify the person however this is not successful in all cases.
Some of the entities to which requests relate are set up for one-off fraudulent
activities and are not contactable by assessing officers. There is nobody at the
registered office and members of the statutory body are abroad.
313. 37% of all received requests over the period under review are pend-
ing at the date of the on-site visit. Out of the 51 requests pending 19 requests
are waiting for clarification from the requesting jurisdiction, 13 are with the
EOI Unit, 11 are with the assessing officer, seven are with banks and one
request is pending response from the taxpayer. Although some of requests are
awaiting a response from the requesting jurisdiction Israel should endeavour
to limit the number of pending requests. Measures to achieve that might
include streamlined communication with the requesting jurisdiction (see
section C.1.1) and respecting internal deadlines in the process of handling
received requests (see further section C.5.2).
314. There was no case where Israel declined to provide the requested
information. Where information required to process the request is missing
Israel supplements the missing information with information already at the
disposal of the tax administration. Only if this is not successful or cannot be
done Israel requests clarifications. Israel sought clarifications in eight cases
in 2011, in 18 cases in 2012 and in nine cases in 2013 (25% of all requests
received over the three years). Clarifications related to the tax purpose of the
requested information, identification of the taxpayer or asking for translation
of a request into English (see further section C.1.1 and C.5.2).
315. Once the EOI request is received Israel provides acknowledgement
of receipt (see C.5.2). This procedure is provided for in the EOI Unit internal
rules, however, this has not been confirmed by peers and Israel should moni-
tor that it informs its treaty partners of receipt of an EOI request in all cases.
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102 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
316. Over the period under review Israel did not systematically provide
updates on the status of requests where information cannot be provided
within 90 days. This has also been confirmed by peers. Although Israel is
taking steps to ensure that status updates on requests where information
cannot be provided within 90 days are provided in all cases, these steps are
not yet implemented and therefore it is recommended that Israel establishes a
routine process to update requesting authorities on the status of their requests
where the response takes more than 90 days.
Organisational process and resources (ToR C.5.2)
Organisation of EOI practice
317. Israels competent authority for purposes of EOI based on its DTCs is
the Ministry of Finance who has delegated this authority to the International
Tax Division of the Israel Tax Authority. The Ministry of Finance is respon-
sible for negotiating DTCs. The power to sign DTCs lies with the Minister of
Foreign Affairs. The treaty proposal is ratified by the Knesset. Subsequently,
the Minister of Finance gives notice of the ratified treaty by Order which is
published in the Official Gazette.
318. Contact details of Israels competent authority are communicated
through letters, face to face meetings or emails to its treaty partners and are
available on the Global Forums Competent Authority database
31
.
319. A special unit within the International Tax Division is solely dedi-
cated to exchange of information in respect of direct taxes. This EOI unit was
established in 2001 and it is currently staffed with three permanent employ-
ees who are assisted by temporary employees on internship programmes. The
manager of the EOI Unit is Israels contact person for exchange of informa-
tion with its treaty partners. The International Tax Division is subordinated
to the deputy director of the Israel Tax Authority.
320. The EOI Unit has direct access to the tax database. If the requested
information concerns simple information readily retrievable from the data-
base such as verification of the identity, tax residency status or taxes paid
such information is directly provided by the EOI Unit. If the requested infor-
mation is of a more complex nature but should be already at the disposal of
the tax authority based on filing requirements such as ownership information
or annual accounting reports the requested information is gathered by con-
tact person in the IT department of the Israel Tax Authority. If the requested
information needs to be obtained from the taxpayer or is contained only
in the taxpayers file (such as tax audit reports or documentation obtained
31. www.oecd.org/securesites/gfcompetentauthorities/.
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COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 103
during tax audits) the information is gathered by the local assessing officer.
There are 26 local tax offices in Israel and one tax office dealing with large
taxpayers. The EOI Unit has one contact person in each local tax office which
is responsible for communication with the EOI Unit in obtaining and provid-
ing the requested information.
321. Requests for banking information are assigned by the EOI Unit
through a standardised letter to a dedicated contact person in the Intelligence
Department of the Israel Tax Authority. The contact person is responsible
for obtaining banking information in domestic and EOI cases. The tax
administration has a contact person in each bank with which all requests
for information related to the specific bank are communicated. There are
frequent meetings and communications between the tax administration and
banks to negotiate procedures for gathering information in specific cases and
in general (see further section B.1.5).
Handling of EOI requests
322. Procedures for handling of EOI requests are the same for all types
of the requested information. If the banking information is requested for
criminal tax purposes the requested information is gathered through court
order (see below).
323. Once a request is received acknowledgment of receipt is sent by the
administrative officer of the EOI unit. All requests are then submitted to the
manager of the EOI Unit for a validity check. The EOI manager together with
the EOI officer verifies whether the requirements of paragraph 5 Article 5
of the model TIEA are met and whether the request is complete (e.g. sig-
natures, attachments). After the initial check the request is allocated to one
of the officers of the EOI unit for further processing. The EOI officer also
enters the EOI request into the EOI database. If clarification is needed and
the required information cannot be supplemented by information contained
in the tax database, a request is sent back to the requesting jurisdiction for
further information.
324. If the requested information is readily retrievable from the tax
database or it is publicly available information the requested information is
gathered directly by the EOI unit. A response was provided directly by the
EOI Unit in 33% of the requests.
325. If the requested information cannot be obtained directly by the EOI
unit the EOI unit officer asks the assessing officer in the local tax office
within which jurisdiction is the requested information held to obtain the
information. When the requested information needs to be obtained from the
taxpayer or third person the EOI unit always requests the assessing officer
to do so.
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104 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
326. Once the requested information is gathered, the assessing officer
provides the requested information to the EOI Unit. The assessing officer
is responsible for the correctness of documents provided. Once a response
is received, the EOI unit officer checks whether the obtained information
represents an adequate response to the request. If not, the assessing officer is
required to provide clarification as to why the requested information was not
appropriately provided and to supplement it when possible. If the information
is sufficient, the response (including titles of supplementary documentation)
is translated into English and sent to the requesting Competent Authority.
Requests for banking information
327. Requested banking information is obtained from banks by a contact
person in the Intelligence Department of the Israel Tax Authority who is in
contact with the banks. The EOI unit sends a designated form for that matter
to the contact person. The contact person then requests the information from
a representative of the relevant bank according to the form. This process usu-
ally takes about three weeks. If the provision of information is disputed by
the bank it takes significantly longer and might take several months. In cases
where the requested banking information relates to a criminal tax investiga-
tion the contact person applies to the court to issue a warrant to the bank
to supply the requested information. No delays were reported in respect of
providing banking information for criminal tax purposes.
328. Two peers raised concerns about Israels ability to provide banking
information especially in cases where the transactional or know your cus-
tomer documentation is requested. As described in section B.1.5, access to
banking information for civil tax purposes is subject to restrictive conditions
and Israel is recommended to address this issue to ensure that the requested
banking information is obtained and provided to its treaty partners in a
timely manner.
Internal deadlines
329. Although the EOI Units working chart includes deadlines the
Internal EOI guidance (Income Tax Circular No.17/2003) does not prescribe
deadlines within which the requested information should be gathered and
provided to the requesting jurisdiction. After the receipt the information
necessary for processing the request is translated by the EOI Unit official
into Hebrew and provided in the standard form to the assessing officer
concerned. According to Israeli authorities this takes approximately three
days. The assessing officer is given a deadline to gather and provide the
requested information by the EOI Unit officer in consultation with the EOI
Unit manager. The prescribed deadline reflects the complexity of the case
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COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 105
and expected availability of the information. According to Israeli authorities
the usual deadline varies between two weeks and one month. If the requested
information is not provided within the deadline reminders are repeatedly
sent and the EOI Unit officer consults with the respective contact person or
directly with the assessing officer gathering the information.
Communication
330. Israel only accepts requests in English. If the request is not in English
the requesting competent authority will be asked to translate the request
(not supplementary documentation) into English. One peer indicated that
it has been requested five times to provide translations where a request and
underlying documentation was provided in a language other than English
and that the process of translation hinders effective exchange of informa-
tion. Discussions have taken place between the competent authorities but it
appears that no solution has yet been reached. As agreement on the language
of requests is a bilateral issue both parties are encouraged to reach a mutu-
ally acceptable solution as quickly as possible so that this matter does not
continue to adversely affect their EOI relationship.
331. Israel does not require a specific format for incoming requests. The
majority of official communication with Israels treaty partners is carried
out via regular or registered post. Two peers indicated that in a few cases
official communication were lost, did not reach its recipient or were not
sent in a secure manner. According to the Israel authorities these limited
cases occurred in the early part of the period under review and steps such as
raising awareness of this issue and regular checking of the Global Forums
Competent Authority database were taken to prevent them happening again.
Nevertheless it should be noted that the use of regular post does not ensure
that official communication is conducted in a timely and secure manner in
all cases.
332. Communication between the EOI unit and the local tax offices is
carried out through a secure internal computer network which ensures appro-
priate timeliness and security of exchanged information.
IT tools, monitoring, training
333. The main source of information for EOI purposes is the tax database
(SHAAM). The tax database contains a vast amount of information includ-
ing ownership information obtained from various sources. The database is
linked to databases of other government authorities such as the registry of
real estates, the registry of cars, the registry of ships and planes, the immigra-
tion office, the social security authority, the labour office or the trade licence
office. The database also includes information from public sources such as
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
106 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
from government tenders or the public internet. The tax database operates a
data mining programme automatically searching for tax relevant information
from public sources. The most frequently used tool for EOI purposes is the
data mining application allowing officials to search for defined sets of infor-
mation through all modules of the database.
334. The EOI database operated by the EOI Unit is used for monitoring
of incoming and outgoing requests. The EOI database currently consists of
an excel spread sheet where information needs to be manually entered. All
incoming requests and supporting documentation are scanned and saved in
the internal EOI Unit database. The EOI database contains the name of the
requesting jurisdiction, the identification of the taxpayer under investigation,
the status of the request, the date of receipt, the date when acknowledg-
ment receipt was sent, the date of final response, the reference number, the
assigned assessing officer and the main subject of the request.
335. The EOI database is monitored daily by the EOI manager who
discusses outstanding issues and pending requests with the Director of the
International Tax Division on a weekly basis. In addition, a report on EOI
activity is submitted every six months to the Deputy Director of the Israeli
Tax Administration.
336. Israel has recently started preparation for a new IT system which
will allow more efficient monitoring of handling of EOI requests. The new
IT system will automatically monitor status of requests and contain several
analytical tools allowing detailed reporting on EOI performance.
337. Each employee of the EOI unit is individually trained in the EOI
procedures and the EOI guidance (Income Tax Circular No.17/2003). The
EOI guidance contains information on basic legal and practical features of
effective exchange of information such as on the legal basis and conditions
of exchange of information, information that can be provided and confiden-
tiality of information. Further, each employee receives on the job training.
Employees on internship programme are undergraduate law and account-
ing students. Their training is organised in the same way as of permanent
employees.
338. The International Tax Division conducts about five seminars per year
devoted to topics of international taxation including exchange of information.
Each seminar is attended by about 50 assessing officers. Three such semi-
nars have been scheduled in first half of 2014. One high level seminar of this
kind is scheduled for second half of 2014. Seminars include sensitisation of
assessing officers to exchange of information, presentation of the EOI guid-
ance, training on drafting requests, discussion of the OECD commentary to
Article 26 of the Model DTC and recent developments in the area of exchange
of information.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 107
339. Each new assessing officer (including new staff of the EOI Unit) has
to pass a Tax University course which also provides lectures on exchange
of information. There is one such course per year. Each course takes four
months and includes four rounds of exams. Further, each assessing officer
has to participate in an ongoing educational programme after the Tax
University course which includes periodic seminars and exams on various
tax topics.
340. Information on exchange of information is also available on internal
webpages. Posted information includes the EOI guidance, Israels DTCs and
a dictionary of the most important EOI concepts.
Conclusion
341. Israel is considered by peers as an important EOI partner. The
majority of peers indicated that Israel provides the requested information
in adequate quality and in the requested form. However, during the review
period Israel provided responses within 90 days in only 32% of cases and
37% of requests are still pending. Peers also raised the issue of timeliness
of responses especially in relation to the provision of banking information.
Some peers referred to a few communication misunderstandings and exces-
sive requests for clarification. Although Israels processes and resources are
generally in place to address these issues as described above, the assessment
team identified some areas where improvements should be made:
Deadlines for each step of handling EOI requests including for
obtaining information from assessing officers and banks should
be clearly stipulated and respected. In cases when the requested
information is not obtained within the deadline reminders should be
periodically sent and case closely monitored.
Monitoring of deadlines should be automatically performed by the
EOI database and followed by reminders in all cases. To streamline
the process and decrease the administrative burden of the EOI Unit
template reminders for the assessing officers should be developed.
Keeping deadlines should be part of performance management
programmes of persons involved in the process of obtaining and pro-
viding the requested information.
A checklist of information which is required to be included in
incoming requests in accordance with the international standard as
contained in Article 5 paragraph 5 of the Model TIEA and its com-
mentary should be part of the EOI Manual to ensure a consistent
approach in all cases.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
108 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION
Communication tools used for official communication between com-
petent authorities should ensure that the information is provided in
a timely and secure manner. One of such tools can be use of emails
with encrypted attachments.
Israel is planning to increase the number of staff in the EOI Unit to
improve effectiveness of exchange of information. This measure can
be combined with a broader use of the tax database by the EOI Unit
so that the requested information can be provided directly by the EOI
Unit more frequently in cases when information is already at disposal
of the tax administration.
Absence of unreasonable, disproportionate, or unduly restrictive
conditions on exchange of information (ToR C.5.3)
342. Exchange of information assistance should not be subject to unrea-
sonable, disproportionate, or unduly restrictive conditions. Other than those
matters identified earlier in this report, there are no aspects of Israels DTCs,
its laws or practices that impose additional restrictive conditions on the
exchange of information.
Determination and factors underlying recommendations
Phase 1 determination
This element involves issues of practice that are assessed in the Phase 2
review. Accordingly no Phase 1 determination has been made.
Phase 2 rating
Partially compliant.
Factors underlying
recommendations Recommendations
Israel provided the requested
information within 90 days in 32%,
and within one year in 54%, of
requests received over the period
under review. Response times
increased over the period under
review as Israel was able to respond
65% of requests within 90 days in the
second half of 2010 and 17% in the
first half of 2013.
Israel should ensure that internal
deadlines for obtaining and providing
the requested information are
respected to enable it to respond to
EOI requests in a timely manner.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 109
Phase 2 rating
Partially compliant.
Factors underlying
recommendations Recommendations
Israel does not systematically provide
updates to the requesting jurisdiction
on the status of requests where the
requested information is not provided
within 90 days.
Israel should ensure that the
requesting authority is updated on the
status of the request in cases where
it is not in position to respond within
90 days.
Although Israels processes and
resources are generally in place
to ensure effective exchange of
information, certain areas mainly
related to establishment and
monitoring of deadlines and the
workload of the EOI Unit should be
improved.
Israel should endeavour to improve
its resources and streamline its
processes for handling EOI requests
to ensure that all EOI requests are
responded to in a timely manner.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 111
Summary of Determinations and Factors
Underlying Recommendations
Overall Rating
Partially Compliant
Determination
Factors underlying
recommendations Recommendations
Jurisdictions should ensure that ownership and identity information for all relevant entities
and arrangements is available to their competent authorities (ToR A.1)
Phase 1
determination: The
element is in place but
certain aspects of the
legal implementation
of the element need
improvement.
Israel authorises the issuance
of bearer shares by companies
other than those registered
on the stock exchange.
There are mechanisms in
place to identify holders
of those shares in certain
circumstances. Only
11 companies have issued
bearer shares and only three
of them are active.
Israel should take necessary
measures to ensure that
robust mechanisms are in
place to identify the owners of
bearer shares.
Israeli law does not ensure
the availability of identity
information in respect of
the settlors, trustees and
beneficiaries of foreign
resident trusts having a trustee
resident in Israel and for trusts
created by new immigrants
and veteran returning
residents which are vested
with assets or income from
assets abroad for a period of
10 years.
Israel should ensure the
availability of identity
information in respect of
the settlors, trustees and
beneficiaries of foreign
resident trusts and for trusts
created by new immigrants
and veteran returning
residents which are vested
with assets or income from
assets abroad.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
112 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS
Determination
Factors underlying
recommendations Recommendations
Phase 2 rating:
Largely compliant.
Jurisdictions should ensure that reliable accounting records are kept for all relevant entities
and arrangements (ToR A.2)
Phase 1 determination:
The element is in
place, but certain
aspects of the legal
implementation of
the element need
improvement.
Israeli law does not ensure
the availability of accounting
records in respect of foreign
resident trusts having a trustee
in Israel and for trusts created
by new immigrants and
veteran returning residents
which are vested with assets
or income from assets abroad
for a period of 10 years.
Israel should ensure that
accounting records consistent
with the standard are
maintained for foreign resident
trusts having a trustee resident
in Israel and for trusts created
by new immigrants and
veteran returning residents
which are vested with assets
or income from assets abroad.
Israeli law does not ensure
availability of accounting
records in respect of activities
outside of Israel of foreign
companies that are managed
and controlled in Israel by
new immigrants or veteran
returning residents for a period
of 10 years.
Israel should ensure
availability of accounting
records in respect of activities
outside of Israel of foreign
companies that are managed
and controlled in Israel by
new immigrants or veteran
returning residents.
Phase 2 rating:
Largely compliant.
Banking information should be available for all account-holders (ToR A.3)
Phase 1 determination:
The element is in place.
Phase 2 rating:
Largely compliant.
The AML/CFT law requires
that all transactional
documentation carried out
in the course of established
business relationships must
be kept regardless of any
threshold. The obligation came
into force only recently and is
untested in practice.
Israel should monitor the
availability of transactional
documentation regardless of
any threshold and effectively
apply enforcement measures
where documentation required
under AML/CFT rules is not
kept.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 113
Determination
Factors underlying
recommendations Recommendations
Competent authorities should have the power to obtain and provide information that is the
subject of a request under an exchange of information arrangement from any person within
their territorial jurisdiction who is in possession or control of such information (irrespective
of any legal obligation on such person to maintain the secrecy of the information) (ToR B.1)
Phase 1 determination:
The element is in
place, but certain
aspects of the legal
implementation need
improvement.
Israels access powers for
the purpose of exchange of
information under international
tax agreements are not
provided explicitly, in all cases,
and are only applicable to
requests made under double
tax conventions.
Israel should ensure that its
competent authority has the
power to obtain all relevant
information pursuant to
requests under all exchange
of information agreements
(regardless of their form).
The tax authorities powers to
obtain information from new
immigrants, veteran returning
residents and the trustees of
foreign resident trusts having
a trustee resident in Israel
in respect of foreign source
income are inadequate.
Israel should ensure that its
authorities have powers to
obtain information from new
immigrants, veteran returning
residents and trustees of
foreign resident trusts which
might be subject of an
information request from its
EOI partners.
Phase 2 rating:
Partially compliant.
Access powers in respect of
banking information requested
for civil tax purposes are not
sufficiently effective to ensure
that all banking information
regardless of its type and
difficulty to obtain is provided
in a timely manner.
Israel should ensure that
the competent authority can
obtain all requested banking
information in a timely manner.
The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the
requested jurisdiction should be compatible with effective exchange of information (ToR B.2)
Phase 1 determination:
The element is in place.
Phase 2 rating:
Compliant.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
114 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS
Determination
Factors underlying
recommendations Recommendations
Exchange of information mechanisms should allow for effective exchange of information
(ToR C.1)
Phase 1 determination:
The element is in
place, but certain
aspects of the legal
implementation need
improvement.
Israels access powers for
the purpose of exchange of
information under international
tax agreements are not
explicitly provided for and are
only applicable to requests
made under double tax
conventions.
Israel should ensure that its
competent authority has the
power to obtain all relevant
information pursuant to
requests under all exchange
of information agreements
(regardless of their form).
Eight of Israels DTCs are not
in line with the international
standard.
Israel should continue its
programme of renegotiation of
DTCs to incorporate wording in
line with the OECD Model Tax
Convention.
In some cases time taken by
Israel to bring its signed EOI
agreements into force was
more than 36 months.
Israel should take necessary
measures to bring its
exchange of information
agreements into force
expeditiously.
Phase 2 rating:
Partially compliant.
The jurisdictions network of information exchange mechanisms should cover all relevant
partners (ToR C.2)
Phase 1 determination:
The element is in
place but certain
aspects of the legal
implementation of
the element need
improvement.
Israel has been approached
by at least one jurisdiction to
negotiate a TIEA, however,
Israels law does not allow
concluding agreements solely
for the purpose of exchange of
information.
Israel should enter into agree-
ments for exchange of informa-
tion for tax purposes (regardless
of their form) with all relevant
partners, meaning those part-
ners who are interested in
entering into an information
exchange arrangement with it.
Phase 2 rating:
Largely compliant.
The jurisdictions mechanisms for exchange of information should have adequate provisions
to ensure the confidentiality of information received (ToR C.3)
Phase 1 determination:
The element is in place.
Phase 2 rating:
Compliant.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 115
Determination
Factors underlying
recommendations Recommendations
The exchange of information mechanisms should respect the rights and safeguards of
taxpayers and third parties (ToR C.4)
Phase 1 determination:
The element is in place.
Phase 2 rating:
Compliant.
The jurisdiction should provide information under its network of agreements in a timely
manner (ToR C.5)
This element involves
issues of practice
that are assessed in
the Phase 2 review.
Accordingly no
Phase 1 determination
has been made.
Phase 2 rating:
Partially compliant.
Israel provided the requested
information within 90 days
in 32% and within one year
in 54% of requests received
over the period under review.
Response times increased
over the period under review
as Israel was able to respond
65% of requests within 90 days
in the second half of 2010 and
17% in the first half of 2013.
Israel should ensure that
internal deadlines for obtaining
and providing the requested
information are respected to
enable it to respond to EOI
requests in a timely manner.
Israel does not systematically
provide updates to the
requesting jurisdiction on the
status of requests where the
requested information is not
provided within 90 days.
Israel should ensure that the
requesting authority is updated
on the status of the request
in cases where it is not in
position to respond within
90 days.
Although Israels processes and
resources are generally in place
to ensure effective exchange
of information, certain areas
mainly related to establishment
and monitoring of deadlines
and the workload of the EOI
Unit should be improved.
Israel should endeavour to
improve its resources and
streamline its processes for
handling EOI requests to
ensure that all EOI requests
are responded to in a timely
manner.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
ANNEXES 117
Annex 1: Jurisdictions response to the review report
32
Israel fully supports the objectives of the Global Forum on Transparency
and Exchange of Information for Tax Purposes and is committed towards
exchange of information (EOI). As of September 2014, Israel has broad EOI
network which includes 51 DTCs in effect. These agreements cover most of
the EU members, 16 of the G20 members, almost half of the Global Forum
members and all but four of the OECD members.
In addition, Israel signed an inter-governmental agreement with the
United States to implement FATCA provisions on 30 June 2014. The agree-
ment follows the Model I IGA, which provides for reciprocity between the
two partners with respect to automatic exchange of information.
We would like to outline that Israel is among the jurisdictions which have
committed to adopt the Common Reporting Standard on Automatic EOI.
It is our interest to broaden the network of EOI arrangements and apply
them as efficiently as possible.
Recommendations made in the report will be studied thoroughly and
Israel will take effective measures to implement them. We would like to
express our thanks to the assessment team for their intensive and dedicated
work on the report.
32. This Annex presents the jurisdictions response to the review report and shall not
be deemed to represent the Global Forums views.
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
118 ANNEXES
Annex 2: List of Israels exchange-of-information mechanisms
Jurisdiction
Type of EOI
arrangement Date signed Date in force
1 Austria
Double Taxation
Convention (DTC)
29-01-1970 26-01-1971
2 Belarus DTC 11-04-2000 01-01-2004
3 Belgium DTC 13-07-1972 01-04-1975
4 Brazil DTC 12-12-2002 21-09-2005
5 Bulgaria DTC 18-01-2000 01-01-2003
6 Canada DTC 21-07-1975 27-07-1976
7 China DTC 08-04-1995 01-01-1996
8 Croatia DTC 26-09-2006 01-01-2008
9 Czech Republic DTC 12-12-1993 23-12-1994
10 Denmark DTC 09-09-2009 29-12-2011
11 Estonia DTC 29-06-2009 28-12-2009
12 Ethiopia DTC 02-06-2004 01-01-2008
13 Finland DTC 08-01-1997 01-01-1999
14 France DTC 31-07-1995 18-07-1996
15 FYROM DTC 23-08-2012 Not in force
16 Georgia DTC 12-05-2010 01-01-2012
17 Germany DTC 09-07-1962 21-08-1966
18 Greece DTC 24-10-1995 06-03-1998
19 Hungary DTC 14-05-1991 13-11-1992
20 India DTC 29-01-1996 15-05-1996
21 Ireland DTC 20-11-1995 24-12-1995
22 Italy DTC 08-09-1995 01-01-1999
23 Jamaica DTC 29-06-1984 03-09-1985
24 Japan DTC 08-03-1993 24-12-1993
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
ANNEXES 119
Jurisdiction
Type of EOI
arrangement Date signed Date in force
25 Latvia DTC 20-02-2006 01-01-2007
26 Lithuania DTC 11-05-2006 01-01-2007
27 Luxembourg DTC 13-07-2004 22-05-2006
28 Malta DTC 28-08-2011 Not in force
29 Mexico DTC 19-07-1999 01-01-2000
30 Moldova DTC 23-11-2006 01-01-2008
31 Norway DTC 02-11-1966 11-01-1968
32 Panama DTC 27-07-2011 Not in force
33 Philippines DTC 09-06-1992 27-05-1997
34 Poland DTC 22-05-1991 01-01-1992
35 Portugal DTC 26-09-2006 18-02-2008
36 Romania DTC 15-06-1997 01-01-1999
37 Russia DTC 25-04-1994 01-01-2001
38 Singapore DTC 19-05-2005 06-12-2005
39 Slovak Republic DTC 08-09-1999 23-05-2000
40 Slovenia DTC 30-01-2007 01-01-2008
41 South Africa DTC 10-02-1978 27-05-1980
42 South Korea DTC 18-03-1997 01-01-1998
43 Spain DTC 30-11-1999 20-11-2000
44 Sweden DTC 22-12-1959 03-06-1960
45 Switzerland DTC 02-07-2003 22-12-2003
46 Chinese Taipei DTC 24-12-2009 01-01-2010
47 Thailand DTC 22-01-1996 01-01-1997
48 The Netherlands DTC 02-07-1973 09-09-1974
49 Turkey DTC 14-03-1996 01-01-1999
50 United States DTC 26-01-1993 01-01-1995
51 Ukraine DTC 26-12-2003 01-01-2007
52 United Kingdom DTC 26-09-1962 13-02-1963
53 Uzbekistan DTC 15-09-1998 01-01-2000
54 Vietnam DTC 04-08-2009 01-01-2010
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
120 ANNEXES
Annex 3: List of all laws, regulations and other material
Commercial laws
Associations Law, 5740-1980
Companies Law, 5759-1999
Partnership Ordinance, 1975
Trust Law, 5739-1979
Monetary Law, 5771-2011
Regulated activities and AML/CFT laws
Prohibition on Money Laundering Law, 5760-2000
Bank of Israel Law, 5770-2010
Banking Ordinance, 1941
Capacity and Guardianship Law, 57221962
Regulation of Investment Advising, Investment Marketing and Investment
Portfolio Management Law, 5755-1995
Securities Law, 5728-1968
Tax laws
Income Tax Ordinance, 5721-1961
Income Tax Regulations, 5724-1963
Value Added Tax Law, 5736-1975
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
ANNEXES 121
Other relevant laws, regulations and other material
Administrative Offences Law, 57461985
Administrative Offenses Regulations, 5747-1987
Archives Law, 5715-1955
Archives Regulations, 57461986
Bar Association Law, 1961
Bar Association Rules, 5731-1971
Capacity and Guardianship Law, 57221962
Protection of Privacy Law, 5741-1981
Succession Law, 5725-1965
PEER REVIEW REPORT PHASE 2 ISRAEL OECD 2014
122 ANNEXES
Annex 4: People interviewed during the on-site visit
Israel Tax Authority
International Tax Division
Investigations and Intelligence Division
Tax Registration Division
Corporations Authority
Registrar of Companies
Registrar of Partnerships
Registrar of Public Trusts
Registrar of Associations
Bank of Israel
Banking Supervision Department
Israel Financial Intelligence Unit (IMPA)
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GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE
OF INFORMATION FOR TAX PURPOSES
Peer Review Report
Phase 2
Implementation of the Standard
in Practice
Global Forum on Transparency and Exchange of Information
for Tax Purposes
PEER REVIEWS, PHASE 2: ISRAEL
This report contains a Phase 2: Implementation of the Standards in Practice review, as well
as revised version of the Phase 1: Legal and Regulatory Framework review already released
for this country.
The Global Forum on Transparency and Exchange of Information for Tax Purposes is the
multilateral framework within which work in the area of tax transparency and exchange of
information is carried out by over 120 jurisdictions which participate in the work of the
Global Forum on an equal footing.
The Global Forum is charged with in-depth monitoring and peer review of the implementation
of the standards of transparency and exchange of information for tax purposes. These
standards are primarily reected in the 2002 OECD Model Agreement on Exchange of
Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax
Convention on Income and on Capital and its commentary as updated in 2004, which has
been incorporated in the UN Model Tax Convention.
The standards provide for international exchange on request of foreseeably relevant
information for the administration or enforcement of the domestic tax laws of a requesting
party. Fishing expeditions are not authorised, but all foreseeably relevant information must
be provided, including bank information and information held by duciaries, regardless of the
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All members of the Global Forum, as well as jurisdictions identied by the Global Forum as
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