Digital currency owners in Israel must disclose their holdings to the country’s tax agency, a new report has revealed. The Israeli Tax Authority has been sending these owners letters, reminding them to pay their digital currency taxes.
The report by Hebrew-language newspaper Globes revealed that the taxman has been closely assessing the digital currency industry in recent months. This has been as a result of a deepening need for extra revenue by the Israeli government and the surge in prices for most digital currencies.
The Tax Authority has been sending inquiries to local and global exchanges, pressuring them to divulge information about Israeli digital currency owners. Having applied the E.U.’s Common Reporting Standards, the Authority has also been receiving data from other European nations regarding Israeli accounts and funds. A bilateral agreement with the IRS further allows the agency to receive financial information on Israelis from the United States.
Globes reports that the agency has been sending letters to digital currency owners, akin to those sent by the IRS in 2019.
“We have information about your activities that does not match your tax return,” the letters tell their recipients. The tax agency then goes on to inform the recipient that it has been collecting data from exchanges that indicates he is not meeting his tax obligations.
“Most players ‘get the message’ and run to their representatives—lawyers and accountants—to look into how they should report,” the paper reports.
According to local tax expert Leor Nouman, the agency is just ‘fishing’ with its latest efforts. Speaking to Globes, he claimed that the letters are framed in the “just tell us what you have before we come for you” format.
For Israeli traders, it’s best to pay the taxes as the government will get to them sooner rather than later, yet another tax expert advises. Gidi Bar-Zakay, the founder of digital currency tax platform Bittax, revealed that authorities in Israel and beyond have been collecting tons of information regarding digital currency taxation. They are now acting on this information and are prepared to crack down on those who fail to comply.
He stated, “With the right technology, using an address, it’s possible to trace the entire wallet, and even reach wallets and platforms that haven’t been properly reported. This leads to a significant increase in tax collection from those who have already filed returns, as well as those who haven’t.”
The Israeli government made its stand known three years ago—digital currencies are a form of property and are subject to 25% taxation. For block reward miners, an extra 17% VAT rate is charged, in addition to their liability under capital gains.