The Israel Tax Authority foreign unit and investigations department have caught an Israeli resident who bought a luxury Patek Philippe watch worth NIS 10 million in a foreign country, after reporting annual income of only NIS 60,000 to the Tax Authority, sources inform "Globes."
The Tax Authority came across the case in early 2016, but it was not previously reported, nor was the method used to catch the Israeli and dozens of other Israelis buying goods worth hundreds of thousands of euros overseas, while reporting very low income in Israel, disclosed.
"Globes" is now reporting for the first time one of the methods used by the Tax Authority, headed by Moshe Asher, to track tax evaders throughout the world - "voluntary lists" received from the tax authorities in other countries. In addition to the other official and unofficial means of obtaining information about overseas Israelis, including exchanges of information between tax authorities worldwide in recent years and lists of Israelis' overseas bank accounts provided by the banks themselves, the Tax Authority is receiving lists from tax authorities around the world with which Israel has signed tax conventions.
These countries are providing these lists "voluntarily," without a prior request from the Israel Tax Authority. The lists include information about exceptional purchases by Israeli within the borders of these countries. The lists are sent to the Tax Authority's international unit, which cross-references the information with reports by those Israelis in Israel, and checks whether the information is consistent with the reports. The information is sent to the relevant tax assessment officers and to the investigations department for further handling in relevant cases. This is how the Israel who bought the NIS 10 million Patek Philippe watch was exposed.
A love for watches
Israel has signed conventions for preventing double taxation with over 50 countries. The parties to these conventions set taxation rules applying to income and assets relating to the two countries. The conventions also include principles for exchanges of information about tax matters between the countries. In the framework of these conventions, some of the countries have undertaken to disclose information about income and funds of Israelis within their borders. The result has been a stream of information to Israel in recent years on disks sent directly to the Tax Authority international unit.
As seen the Tax Authority, this information obtained in this way is negligible, or "thin" (as a Tax Authority called it), compared with the information now arriving from the US from exchanges of information in the wake of the Foreign Account Tax Compliance Act (FATCA). The information in the former case is disclosed "voluntarily," and the countries are in no hurry to send such disks; nevertheless, from time to time, such "thin" information yield pearls.
A standard disk arrived several years ago with information from a European country, leading to dramatic information about the "poor" Israeli supposedly earning only NIS 60,000 a year who bought a luxury Patek Philippe watch at an unbelievable price. This specific information was obtained by Advocate Yariv Aviram, CPA, who until recently managed information exchanges for the Tax Authority international unit. He was astounded at what he discovered. Aviram, who recently resigned his position at the Tax Authority and is now head of the international tax department at the Bracha & Co. law firm, is disclosing the case for the first time.
"A European country sent me information, and said, 'Your resident bought a luxury watch here from a European company'," Aviram told "Globes." "The country checked with all the companies selling this watch there, and saw that many foreign residents had bought the watches, so it sent the information about those purchasers to all the countries involved. It was spontaneous information. The country sending it has no interest in that information, because it can't tax an Israeli resident.
"We were stunned to find on this list a purchase of a Patek Philippe watch worth NIS 10 million. I wouldn't leave the house with such a watch. What I found out when I checked this taxpayer - his ID number - was astounding. I saw he had no file whatsoever at the Tax Authority. He didn't make a report as a self-employed person. The only income he reported earning was NIS 60,000 a year. There was no hesitation at all - it went straight to the investigations department."
According to Aviram, although the case was exceptional in the amount of the purchase and the difference between the person's declared income and the value of the purchased watch, such stories of huge purchases by Israelis reporting low income are a routine matter at the Tax Authority.
"Israelis really love expensive watches, and the amount of information received by the Tax Authority about Israelis buying watches overseas is really large, especially in Europe. The amount of this information is significant, compared with the information about purchases of other luxury items. We get 20 reports a year containing information about purchases costing hundreds of thousands of euros per watch," Aviram remembers.
Working without reporting any income
Information like that leading to the detection of the Israeli who bought the luxury Patek Philippe is reaching Israel following checks by foreign authorities within their borders, among other things when a foreign tax authority decides to crack down on a specific market by examining the VAT statements by the merchants in it. An examination of sales of luxury watches in Europe, especially Rolexes, one of the bestselling and most desired brands, is a common occurrence.
As part of these examinations, the tax authorities ask the merchants for a list of all of their buyers, especially the foreign ones, who receive a VAT exemption for the purchase. In other cases, the information results from a criminal investigation for evasion of VAT, income tax, or other taxes against some seller.
Aviram explains, "The Tax Authority has been receiving information about Israelis buying all types of luxury watches for hundreds of thousands of euros or dollars, or even more, for years. In many cases, they buy the watches in a foreign country and sell them here, and the Tax Authority discovers that they have reported no income at all. These people do everything off the record."
"Globes": What other luxury items do people buy overseas?
Aviram: "We also got reports about luxury cars purchased overseas. We got information about all sorts of Israelis living overseas for short periods who still owe tax in Israel, and who also have large overseas homes. They have a high standard of living, and buy luxury items. Information also came in about people entering the airport overseas and declaring amounts of cash that they are carrying. You can declare over €10,000 at a European airport, and then it turns out that this money wasn't declared in Israel."
Published by Globes [online], Israel Business News - www.globes-online.com - on October 15, 2017
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