Limiting the amount of cash that will be allowed to be held at home to NIS 200,000 and reporting the holding of a cash amount over NIS 50,000; Reporting on the holding of cryptocurrencies over NIS 200,000; Reporting invoices over NIS 5,000 in real time; Limiting the receipt of cash loans from changers to NIS 6,000; And the imposition of a reporting obligation on trustees – these are the main legislative initiatives that were introduced in the chapter on the fight against black capital in the draft Arrangements Law distributed by the Ministry of Finance this week.
This is a “lean” chapter in relation to the original chapter that the Treasury purported to pass in the previous Arrangements Law, which included a number of legislative initiatives that met with strong opposition in the market, including the Tax Authority’s requirement to obtain information directly from banks on business account transactions. Non-taxable renters report the income they receive from the rent (for renters whose monthly rent is less than NIS 5,070, and therefore enjoy tax exemption and reporting).
The Tax and Finance Authority is still trying to revive two of the initiatives included in the previous Arrangements Law: the fight against fictitious invoices and the monitoring of virtual assets.
In the plan: a ban on holding cash over NIS 200,000
It seems that the tax authority puts most of the eggs in one basket this time: in a plan that is supposed to put the most money in the state coffers – about a billion shekels within a few years – the reform of the fight against fictitious invoices, known as the “Chilean model.” As part of the plan unveiled at Globes in February 2020, any business owner who issues an invoice in the amount of more than NIS 5,000 should receive immediate approval online while making the transaction from the tax authority. An invoice that is not approved, it will not be possible to offset the VAT on the garden.
The plan has received strong opposition in the past in light of the fear in the economy that the tax authority’s computer system will not be able to bear the load of reports, which will result in transactions and may even frustrate many transactions. Another key issue as such is the restriction of cash holdings as well as the reporting requirements for cash, and for cash equivalents, including crypto assets.
“Many studies show a link between the use and possession of cash and crime. Surveys conducted in Europe show that only 33% of cash is used for legitimate activity, with the estimate that the rest of the cash is kept at home or by residents, but a significant part is probably used for crime,” the statement said. The Arrangements Law further states that “in combination with further research it was found that the countries with the highest cash use ratio (Greece, Romania and Bulgaria) also have a high black capital ratio relative to the world. In Italy, a correlation was found between the high cash ratio and organized crime, and a study in Missouri, USA, found that a decrease in cash turnover reduced crime rates in the country.
An examination made on the basis of data on the opening of police cases revealed that a significant proportion of the cash seized by it was attributed to violent offenses (extortion, arson and assault), bribery, and financing. Therefore, it is proposed in the chapter on the struggle against black capital to establish a criminal prohibition on withholding cash in the amount of NIS 200,000 and imposing an administrative fine on the offender. The amount was determined following the work of the inter-ministerial team to examine the crime phenomenon in Arab society, headed by Ram Blinkov, who found that the annual median expenditure per household constitutes a “safety cushion” that allows a normative person to hold for a period of one year in crisis and without additional income.
“This amount is a conservative estimate of the amount held for current and necessary use, and therefore, on the one hand holding a higher amount may constitute a potential for criminal activity and may indicate illegitimate use of this cash on the one hand, and restrictions on holding a higher amount are not likely to harm That he intends to use cash in a normative manner, “the Arrangements Law explains.
At the same time, it was stated that the restriction will be implemented after an outline for the absorption of cash in banks by the Bank of Israel has also been formulated, but it is not specified what such an outline will include. There are currently many restrictions on depositing cash in banks, due to the rules prohibiting money laundering and requiring proof of the source of the money. The law does not clarify how these limitations can be overcome.
In addition to restrictions on holding cash in large amounts, it is proposed to impose a reporting obligation on holding cash in the amounts of NIS 50,000 to NIS 200,000, as well as to establish a reporting obligation on all assets worth more than NIS 1 million, except for crypto assets. Obligation to report.
The demand to limit the holding of cash to NIS 200,000 was a rock of division among the members of the inter-ministerial team headed by Blinkov, after some of the team members felt that a reporting obligation was sufficient and there was no need to limit the possibility of holding large sums of cash at home. The Arrangements Act adopts the stricter approach supported by the Director General of Finance, Blinkov.
The chapter on the struggle against black capital also includes the “reversal of VAT charge” model, which seeks to stipulate that in transactions involving the provision of personnel services, including cleaning, guarding and security services, and construction work services, the liability to pay VAT will apply to the recipient. It deals, unlike the current situation where the service provider is the taxpayer. The need for an amendment stems from the fact that in the said industries there is an increased phenomenon of issuing tax invoices illegally. These are industries where many workers are employed illegally and sometimes without documentation, and in order to reduce tax liability without reporting illegal employment “Unlawful tax invoices from employers. In order to combat this phenomenon, it is proposed to stipulate that in providing such services to the dealer, the recipient of the service will be liable to pay the tax.”
This model exists in the gold industry, as well as in a number of EU countries.
Director General of the Ministry of Finance Ram Blinkov / Photo: Sivan Shachor, Anaba, Ltd.
“Steps that may spill the baby with water”
Although this is a first draft and quite “thin”, and it is not at all clear what will remain of the black capital chapter during the long road that the Arrangements Law has to go through until its enactment, market representatives are already reacting angrily to the major plans introduced into the law.
“The steps that the state is seeking to take in the war on black capital are too serious and I am not convinced that they will not cause a boomerang effect,” says attorney Uri Goldman, tax expert and chairman of the Anti-Money Laundering Committee at the Bar Association. On cryptocurrencies it is very low, and unjustified. This differentiates the crypto holders from the rest of the citizens for no injustice in their hands. There was at least room to compare them to reports on the capital market, where the amount of the report is about NIS 800,000. “
In addition, according to Goldman, “the restriction on holding cash over NIS 200,000 is outrageous. This is money that has been legal until now, and in fact there will be no way to use it because the banks will not accept it. Receive cash deposits, even if there are no references for them. “
As for the requirement to report in real time on invoices over NIS 5,000, Advocate Goldman says that “it is not clear what it will be useful for, other than adding difficulties and bureaucracy to commercial life. “It is not possible to kill all the trading moves in the market just because of the fictitious invoices, and the previous bill in this matter fell for exactly this reason.”
As for the proposal to apply a self-invoice to manpower companies, Goldman claims this is a model “that is inefficient and inapplicable, as it directly conflicts with current practice and may indirectly affect the cost of apartment prices as companies and contractors pass the costs on.”
Bottom line Advocate Goldman says, “The steps the tax authority is asking to take are too aggressive and may spill the baby with the water. It is proposed that the tax authority focus on effective enforcement and not on killing all commercial life under the slogan of ‘the war on black capital’. “
Tax expert Adv. Itai Bracha, a partner in the law firm of Bracha & Co., also believes that these are problematic steps. “The requirement to limit cash holdings is disproportionate and in small amounts,” he says. “Before advancing the legislation, a voluntary disclosure procedure must be published in which people will be able to declare and prepare the cash in their possession and also examine that the procedure that the Bank of Israel will evaluate for the purpose of depositing money will be applicable and carried out by the banks.”
Opponents: The outline will turn citizens into criminals overnight
Bracha adds that “in light of the difficulties that exist today in depositing cash in banks, it is difficult to see any outline in which the banking system will agree to accept cash in bank accounts, even if on paper things are clearly written in the draft law. De facto, the state “This is a serious disconnection of finance officials from the situation in the economy and the conduct of the banks.”
Bracha adds that “the requirement to report the holding of cryptocurrencies in excess of NIS 200,000 is a copy of the paste from the previous round in which the offer fell and I assume it will fall now as well. Cryptographic currencies are an unstable market and on a certain day .
But not everyone is shocked by the struggle against black capital. According to Tax Adviser Yaron Gindi, President of the Chamber of Tax Advisers, “The tax authority should be given all the tools worthy of war on black capital. They cannot be allowed to face the phenomenon with their eyes closed, without full and proper reporting, including -2023 “.
Gindi also says that “amending the VAT regulations regarding the liability to pay VAT on the recipient of the service in transactions of cleaning, guarding, security and construction – this is the need of the hour, because the result will be protection of honest business owners and prevent the distribution of fictitious invoices that harm the Israeli economy.” However, Gindi opposes the requirement to report invoices in real time at this stage.