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What triggers a tax audit in Israel?

tax inspection in Israel

Tax audits in Israel are a reality that both individuals and companies have to face. Tax compliance is essential to avoid the penalties and complications associated with these audits. We'll look at the factors triggering a tax audit in Israel and the importance of tax compliance for individuals and businesses.

Factors triggering a tax audit in Israel

In Israel, various factors can trigger a tax audit. It's essential to be aware of them to avoid tax-related errors and problems.

Here are some of these factors: (Non-exhaustive list).

Tax inconsistencies and accounting anomalies

Tax inconsistencies and accounting anomalies can attract the attention of tax authorities.

In fact, it's the number 1 cause of control (after anonymous tips).

It is therefore crucial to ensure that your declarations and accounts are in order to avoid any suspicion of irregularity.

To do this, remember to :

  1. Send your reports on time.
  2. Pay your taxes on time.
  3. No tax arrears.
  4. Don't ask for too big a refund (the taxman doesn't like to pay too much, just like us).
  5. No major changes in your income percentages, without justification.
  6. Don't be left with a tax inconsistency.

For example: You're an Ole Hadash. You are 40 years old. You live in the middle of Raanana, in a house that costs 8 million Nis, and you declare an income of 8,000 Nis / month, that's an inconsistency...

Income disparity and lifestyle incompatible with declared income

A discrepancy between declared income and declared standard of living can arouse the curiosity of the tax authorities. It is essential to be able to justify your income and expenses in the event of an audit.

International transactions and offshore operations

International transactions and offshore operations can also trigger a tax audit. Exchanges of information between countries facilitate the detection of undeclared foreign income.

Cash activities and bank reports

Cash activities and reports banking can also lead to a tax audit. Tax authorities are particularly attentive to large and unusual cash transactions.

Read also: Cash payments in Israel - new restrictions.

Abnormal deductions and unjustified tax credit claims

Visit abnormal deductions and unjustified claims for tax credits can also lead to a tax audit. Fraudulent declarations are often detected thanks to data cross-checks carried out by the tax authorities.

Non-declaration of foreign assets and income

Failure to declare foreign assets and income can lead to a tax audit. The automatic exchange of information between countries facilitates the detection of such situations.

Suspected tax evasion and third-party reports

Suspicions of tax evasion and reports from third parties can also trigger a tax audit. Tax authorities take into account information provided by third parties to identify at-risk taxpayers.

Random checks and technological advances

Finally, tax audits can be triggered at random, for no particular reason. Technological advances and data analysis make it easier to identify high-risk taxpayers.

In short, to avoid tax audits in Israel, it's essential to comply with your tax obligations and ensure that your tax returns and financial activities are transparent.

Using the services of chartered accountants such as Dray & Natco can help you manage your tax obligations and ensure optimum compliance.

Preparing for and dealing with a tax audit

When faced with a tax audit in Israel, it's important to be prepared and to behave appropriately. Here are some tips for dealing with a tax audit:

Transparent and regular tax returns

It's essential to respect your tax obligations and ensure that your tax returns and financial activities are transparent. By being honest and rigorous in your declarations, you reduce the risk of complications in the event of a tax audit.

Keep accounting and supporting documents up to date

To facilitate the tax audit process, it's important to keep all accounting and supporting documents relating to your financial activities. These documents will enable you to prove the regularity of your declarations and avoid penalties.

Know your rights as a taxpayer

As a taxpayer, it's important to know your rights during a tax audit. For example, you have the right to ask for clarification of the audit process, and to contest the results if you feel they are incorrect. Find out more about your rights so that you're better prepared in the event of an audit.

Using chartered accountants for tax management

To ensure optimum compliance and avoid tax audits, it's advisable to call on the services of certified accountants. We'll help you manage your tax obligations and prepare you in the event of a tax audit.

In short, being prepared and behaving appropriately in the event of a tax audit in Israel is essential to avoid complications and penalties. By complying with your tax obligations, keeping your accounting records up to date and using the services of certified accountants, you reduce the risks associated with tax audits.

Example of a tax audit and resolution

In this section, we'll look at an example of a tax audit in Israel and how it was resolved. This example will give you a better understanding of the tax audit process and the steps you need to take to regularize your situation.

Identification of irregularities and anomalies

In this example, the Israeli tax authorities have identified irregularities and anomalies in a company's tax returns. These included undeclared income, abnormal deductions and suspicious international transactions. Following this identification, a tax audit was launched.

Verification and audit processes

During a tax audit, the tax authorities carry out an in-depth verification of the accounting documents and supporting evidence provided by the company. This stage may include requests for clarification, comparisons of data (customers, suppliers, employees) and analyses to determine the cause of irregularities and anomalies.

Error correction and tax regularization

Having identified errors and problems in the company's tax declarations, the tax authorities request that these errors be rectified and the tax situation regularized. The company must then make the necessary changes and pay any taxes and penalties due.

Lessons learned and tips for avoiding future problems

This example of a tax audit underlines the importance of tax compliance and regular tax declarations. To avoid problems in the future, it is essential to comply with your tax obligations, keep your accounting records up to date and call on the services of chartered accountants for expert advice and optimal tax management.

Conclusion

In conclusion, it is essential to stress the importance of tax compliance to avoid tax audits in Israel. Taxpayers, whether individuals or companies, must ensure that they meet their tax obligations and declare their income and activities transparently and regularly. Accounting and tax professionals play a key role in managing tax obligations, and can provide valuable assistance in ensuring optimum compliance.

We have discussed the various factors triggering a tax audit in Israel and tips for dealing with them. It's important to remember that, by complying with your tax obligations and using the services of certified accountants, you reduce the risks associated with tax audits and avoid potential complications and penalties.

We invite you to contact us for tax and accounting assistance in Israel. Our professional services and expertise in Israeli tax regulations will help you manage your tax obligations effectively and prevent tax audits.

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Boruch Levenson - CPA

A native English speaker qualified in both Israel and the UK, Boruch cares for the English speaking clients.

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English speaking accountants in Israel
Address: Kanfei Nesharim 68. Merkaz Oranim
Phone number: 02 631 9000
Fax: 02 631 9005
Email: office@cpa-dray.com