Update: 14 March 2023 by Enis Gencer
Israel closer to introducing continuous transaction controls (CTCs) in tax system
Israel’s government approved the 2023-2024 budget on 24 February 2023 to introduce a continuous transaction control (CTC) model in its tax system.
This long-awaited move will have significant implications for businesses operating within the country. It is essential to know the changes that may impact your company.
Israel’s plan for continuous transaction controls
The new plan, prepared by the Ministry of Finance and approved by the government, envisages a clearance model for invoices over NIS 5,000 (appx. 1300 Euros) issued between businesses. Under this model, invoices must be issued through a tax authority system and receive real-time approval.
The tax authority system will issue a unique number as proof of clearance for each invoice, which businesses can then use to deduct input VAT. The government has also proposed that the tax authority be entitled to refuse a request to assign a number and not clear the invoice if there is a reasonable doubt that the invoice is not issued legally.
While this plan is an exciting development, it is only the beginning of a long journey towards implementing a CTC model. The above proposal is currently only outlined in a budget document, which will be subject to further readings and approvals before the government can implement it.
Additionally, an amendment to VAT Law and the publication of technical details will be necessary to make it legally and technically enforceable.
For further information on the digitization of tax in Israel, speak to a member of our team.
Update: 9 April 2020 by Joanna Hysi
Israel on the road to continuous transaction controls
With the long-lasting problem of fictitious invoices in Israel, a move towards some form of mandatory e-invoice clearance might be the answer. After having been withdrawn once due to failing support, the idea of a continuous transaction control model is being revived by the Israeli tax authority. The proposed model, similar to Chile, would include a direct connection between the tax authority and businesses in real time for each transaction. The proposal, which is currently being reviewed with interested stakeholders, will be presented to the Knesset Finance Committee, with the hope of promoting legislation for implementing the planned reform measures as soon as a new government is formed.
Subject to final adoption in law, the core points of the reform are:
- B2B Invoices over NIS 5,000 must be reported in real-time to and approved by the tax authority.
- The reporting will occur through an accounting software or a government web portal.
- Information required to be reported includes the date of the transaction, invoice number, business numbers of the transacting parties and the amount of the invoice, excluding VAT.
- An authentication by the buyer of the invoice on the government portal is envisaged.
- Pre-population of the VAT return is also envisaged.
It’s an interesting observation that for years Israel appeared to be heading towards the EU approach of a post-audit system, yet recently they seem to have pivoted and be heading towards the more Latin American style of continuous transaction controls.
Either way, the Israeli tax authorities are now taking firm measures to combat VAT fraud, as to whether they go for a model similar to Chile, or something close to home in India or Turkey, we will have to wait and see.
