PART EIGHT: RETURNS, NOTICES AND INFORMATION


CHAPTER ONE: PREPARATION AND SUBMISSION OF RETURNS

Power to require keeping of accounts
130. (a) (1) For purposes of the assessment, the Director may – either
generally or in respect of certain categories of assessees – direct
that account books be kept in respect of income derived from a
business or vocation, and in those provisions he may prescribe
rules on the method of keeping the account books, including the
assessee's duty to require a person with whom he maintains any
business relationship to deliver his personal particulars to the
assessee and to identify himself; the directions shall go into effect
three months after their publication in Reshumot, or at a later
date prescribed by the Director, and he may do so either
generally or for a certain category of assessees; however, the
abrogation of directions or the issue of alleviating directions may
take effect earlier than three months after the day of their
publication.
(2) On an assessee's application, the Director may – on conditions
and for a period as he may prescribe – approve a change of the
provisions applicable to him; if the Director rejects the application,
then the assessee may, within three months, lodge objection with
a committee established under section 146 (hereafter: books
acceptability committee).
(3) The Director may, on application of an assessee who is the
owner of a small business within its meaning in section 145A,
and after receiving the opinion of a committee appointed by him
for that purpose, exempt that assessee from the duty of keeping
books if he meets criteria set by the Director in rules published in
Reshumot in respect of a physical or mental condition or illiteracy,
because of which the assessee is unable to fulfill the duty of
keeping books; notice of the composition of a committee
appointed for the purposes of this paragraph shall be published
in Reshumot.
(4) For the implementation of this Ordinance, the Director may order
that books be kept in respect of the income, expenses, intakes
and payments of a public institution defined in section 9(2), of a
professional organization defined in section 9(2a), or of a
nonprofit institution defined in the Value Added Tax Law 5736-
1975 (hereafter: institution), and in those instructions he may also
prescribe rules on the bookkeeping method, including the 196
institution's obligation to require anyone, with whom it maintains
any connection whatsoever, to give the institution his personal
particulars and to identify himself; the Director may order as
aforesaid in general or for a certain category of institutions, and
the instructions shall go into effect three months after they were
published or at a later time prescribed by the Director; the
cancellation of aforesaid instructions or the prescription of
alleviating conditions may go into effect earlier than three months
after the day of their publication.
(5) For the implementation of this Ordinance the Director may order
a management company, as defined in the Control of Benefit
Funds Law, to keep books in respect of the moneys deposited in
a benefit fund under its management.
(b) When directions under subsection (a) have been issued, the Assessing
Officer may refuse to accept accounts not based on account books
kept in accordance with those directions, if deviations from those
directions or the defects found in the account books are material to the
ascertainment of an assessee's income, and in the case of an
institution – if they are material.
(c) If the Assessing Officer refused to accept accounts as said in
subsection (b), or rejected account books because aforesaid defects
were found in them, he shall send a notice to that effect to the
assessee or to the institution, specifying the grounds for his decision.
(c1) Decisions by an Assessing Officer under subsections (b) and (c) in
respect of an institution require the Director's approval.
(d) (1) Objection to a decision by the Assessing Officer under
subsection (c) may be lodged with the books acceptability
committee within 30 days after the notification was received.
(2) The period from the day on which objection under paragraph (1)
was lodged until the committee's decision is received shall not be
included in the periods said in sections 145 and 152(c).
(e) If an objection was lodged as said in subsection (d) and was dismissed,
then the account books shall be deemed unacceptable for purposes of
an appeal against the assessment.
(f) An Order under section 152(b), based on the non-acceptance or
rejection of books, as said in subsection (b) or (c), shall not be issued
before notice thereof under subsection (c) has been sent to the
assessee, before the time for lodging objection to the Assessing
Officer's decision has elapsed and – if objection was lodged – before
the books acceptability committee gave its decision.
(g) Lodging an objection under this section does not take the place of a
contestation under section 150.
(h) If no objection was lodged under subsection (d), then the Assessing
Officer's decision under subsection (c) may be appealed before the
District Court, together with the appeal under section 153.
(i) The provisions of subsections (c) to (f) shall also apply to a decision by
the Director under section 147.
(j) Nothing in directions issued under subsection (a) shall be construed as
requiring any person to disclose secret information given him in the
exercise of his vocation.
(k) (1) If directions were given under subsection (a) and one of the
following was done, then the books shall be deemed
unacceptable, unless the Assessing Officer is satisfied that there
was sufficient reason for the said act: 197
(a) use of an invoice issued without a sale or provision of a
service, or the amount stated in it does not reflect the price
of the sale or the price of the provided service, as the case
may be; for this purpose: "invoice" – within its meaning in
the instructions issued under this section and also a tax
invoice, within its meaning in the Value Added Tax Law;
(b) income of a substantive amount was not included in a
return submitted under section 131;
(c) in a return submitted under section 131 a private
expenditure was deducted, or an expense without any
purchase or acquired service, or the amount of expense
deducted as aforesaid does not reflect the price of the
purchase or the price of the service received, all in a
manner that reduced the chargeable income or increased
the loss by a substantive amount.
(2) If a person disputes a decision made under paragraph (1), then
he may request – within thirty days after he received the decision
– that the Assessing Officer reconsider and change it; if the
Assessing Officer rejected the request to change all or part of his
decision, then appeal may be lodged against the decision, as if it
were an Order under section 152(b), provided that the date for
lodging the appeal be within sixty days after his decision was
handed down, or together with the appeal against the
assessments made for that tax year; for purposes of this
paragraph: "Assessing Officer" – exclusive of an Assistant
Assessing Officer and of a Chief Collector.

Keeping books in a foreign currency and determining income accordingly
130A. (a) A diamond merchant may keep the account books, which under section
130 he is required to keep for his diamond business, in terms of a
foreign currency, in accordance with rules to be prescribed by the
Minister of Finance with approval by the Knesset Finance Committee,
which shall include the conditions on which a person who chose to
keep books as aforesaid may retract that choice; for this purpose:
"diamond merchant" – a person whose business, or part of whose
business is the processing of or the trade in or the brokering of
diamonds, as well as a controlling member, as defined in section 32(9),
of a company the business of which is as aforesaid;
"diamond business" – the processing of diamonds, trading in
diamonds or brokering them, and for a diamond merchant who is a
controlling member of a company that is a diamond merchant – any act
that affects the property, the obligations or the capital which he invested
in or received from the said company, or from a company which is a
diamond merchant and which is under his control.
(b) If an assessee has a permanent enterprise abroad, not in an area as
defined in section 3A, then he shall keep the account books, which
under section 130 he is obligated to keep in respect of his income from
the said enterprise, in terms of foreign currency, in accordance with
rules prescribed by the Minister of Finance with approval by the
Knesset Finance Committee.
(c) In addition to the provisions of subsections (a) and (b), those specified
below may keep the account books they are obligated to keep under
section 130 in foreign currency, according to rules prescribed by the
Minister of Finance with approval by the Knesset Finance Committee, 198
which shall include the conditions on which a person who chose to
keep books as aforesaid may retract that choice:
(1) a partnership, if all its members are foreign residents and all their
investments and all the loans which they extended to the
partnership are in foreign currency, and if the Director approved it
for purposes of this section;
(2) a foreign invested company, as defined in section 53H of the
Encouragement of Capital Investments Law 5719-1959;
(3) a company, at least 90% of whose income is from the operation
of ships or aircraft in international transportation.
(d) In respect of a diamond merchant who chose to keep books as
specified in subsection (a), of an assessee who has a permanent
enterprise abroad as said in subsection (b), of a company or a
partnership which chose to keep books as said in subsection (c), the
Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe rules for the determination and calculation of its
chargeable income and, in particular, of expenses, income and
depreciation, and rules on tax liability and tax payments and on linkage
differentials and interest thereon, all taking into account that books are
kept in a foreign currency as aforesaid; rules under this subsection shall
apply notwithstanding anything provided in any statute.

Who must make a return
131. (a) The following shall submit a return:
(1) an individual Israel resident who reached age 18 by the
beginning of the tax year; a registered spouse may refrain from
including the income of his spouse, if the spouse submitted a
separate return of his income or if the registered spouse attached
to his return a declaration signed by his spouse that he will report
his income separately;
(2) a spouse who is not a registered spouse who declared as said in
paragraph (1) that he will make a separate return of his income;
(3) an individual Israel resident who had not yet reached age 18 at
the beginning of the tax year, if in that year he had chargeable
income in an amount not less than NS 59,570 in tax year 2007, or
some other amount set by the Minister of Finance for this
purpose;
(4) an individual foreign resident who had chargeable income in the
tax year;
(5) a body of persons which had income in the tax year;
(5a) a person who during the tax year sold a real estate right or
performed an association act, as defined in the Land
Appreciation Tax Law, which is not exempt of tax under that Law,
and who did not pay appreciation tax at the highest rate
applicable under the Real Estate Taxation Law on the real
appreciation that arose out of the sale or act, as the case may be;
(5b) in respect of trusteeships, each of the following:
(1) a trustee in a trusteeship of Israel residents or a trustee in a
trusteeship under a will that under section 75L(c)(1) is
deemed an Israel resident, provided the creator did not
elect to be assessable and chargeable under the
provisions of sections 75G(h) or 75L(e) and that no
representative creator or representative beneficiary was
chosen under the provisions of section 75F1, as the case 199
may be;
(2) a trustee who had income or assets in Israel, whether or
not he is an Israel resident;
(3) a creator or a beneficiary, as the case may be, who elected
to be assessable and chargeable under the provisions of
section 75G(g) or (h), or under section 75L(e) or (f);
(4) a representative creator or a representative beneficiary, as
the case may be, who elected to be assessable and
chargeable under the provisions of section 75F1;
every term in this paragraph shall have the meaning it has in
section 75C or in section 75F1, as the case may be;
(5c) a controlling member, as defined in section 75B, of a foreign
occupational company, as defined in section 5, or in a controlled
foreign company, as defined in section 75B;
(5d) a person who performed an act, which under subsection (g) is
designated as tax planning that requires reporting;
(6) every person of whom the Assessing Officer so demanded, even
if he does not have to submit a return under paragraphs (1) to
(5).
(a1) If a return was submitted that includes the income of both spouses,
then each of the spouses shall sign it to attest the correctness of what
is declared about his part.
(b) The return shall specify the income which the person who submits it
had in the year to which it relates, as well as all the particulars required
for purposes of this Ordinance in respect of that income, and to it shall
be attached –
(1) a balance sheet and profit and loss account – if the return is
based on a complete set of double-entry accounts;
(2) particulars of the calculation on which the declared income is
based – if it is based on a set of accounts other than said in
paragraph (1);
(3) a detailed estimate of turnover, expenses and percentage of
profit, or documents or other data on which the declared income
is based – if the return is not based on account books.
(b1) The return shall specify every act, which under subsection (g) is said to
constitute tax planning that must be reported;
(b2) (1) If an individual is under obligation to submit a return under
subsection (a)(1) to (4), (5a), (5c), (5d) and (6), and if he has
income under section 2(1), (2) or (8), then he shall submit the
return according to the provisions of this section in an online
manner, as the Director shall provide, together with a declaration
on a form prescribed by the Director, according to which the
particulars he gave in the return are correct and complete, as well
as a printout of the said return, signed by him (hereafter: online
independent return).
(2) If an individual said in subparagraph (1) did not submit an online
independent return, then for the purposes of the provisions of this
Ordinance he shall be deemed a person who did not submit a
return.
(3) The provisions of this Ordinance about a return under section
131 shall apply to the online independent return, unless there is
an explicit different provision.
(4) Notwithstanding the provisions of paragraph (1), the Minister of
Finance may – with approval by the Knesset Finance Committee 200
– designate categories of individuals who will be exempt of the
obligation to submit online independent returns according to
criteria of economic status, amount of income and medical
condition, and also because of other special reasons that will be
prescribed in regulations, on condition that a said exemption not
apply to individuals who submitted claims for grants under the
Law For Increased Labor Force Participation and the Reduction
of Social Gaps (Negative Income Tax) 5768-2007.
(c) A return under subsection (a)(5), other than the return of a partnership,
shall be certified by an auditor, within the meaning of the term in the
Auditors Law 5715-1955, and adjusted by him for purposes of the tax;
however, for a body of persons which is a cooperative society affiliated
to an audit union the return may be certified and adjusted for tax
purposes by an audit union official duly registered with the Registrar of
Cooperative Societies.
(c1) (1) The trustee, creator, representative creator, beneficiary or
representative beneficiary, as the case may be, shall specify all
the following in a report as said in subsection (a)(5b)(1), (3) or
(4):
(a) the particulars of all creators and all beneficiaries,
particulars of the trustee and of the protector of the
trusteeship, if there is one, and the residential status of
each of these;
(b) particulars of the assets vested in the trustee or from which
income was vested in the trustee, and also particulars of
the income from these assets that was vested in the trustee
as aforesaid, and the date when the asset or the income
was vested as aforesaid;
(c) particulars of the assets that were distributed and
particulars of the income that was distributed, and also the
date of the distribution.
(2) The trustee shall specify all the following in a report said in
subsection (a)(5b)(2):
(a) the particulars of all creators and all beneficiaries,
particulars of the trustee and of the protector of the
trusteeship, if there is one, and the residential status of
each of these;
(b) particulars of the assets in Israel that were vested in the
trustee or from which income was vested in the trustee,
and also particulars of the income that was vested in the
trustee from aforesaid assets, and when the asset or the
income was vested as aforesaid;
(c) particulars of the assets in Israel that were distributed and
particulars of income from assets in Israel that was
distributed, and also the date of the distribution.
(3) In this subsection, "particulars of the assets" – including the
original cost, the balance of the original cost and the day of the
acquisition, as defined in section 88, the value of the acquisition
and the day of acquisition within their meaning in Chapter Three
of the Real Estate Taxation Law, and the balance of the
acquisition value, as defined in section 47 of the said Law, as the
case may be.
(c2) To a return under subsection (a)(5c) by the controlling member of a
foreign occupational company shall be attached an audited financial 201
report of the foreign occupational company in accordance with
bookkeeping principles accepted in Israel, and – if it is a company that
reports to or is assessed in a reciprocating state, within its meaning in
section 196 – the report drawn up for tax purposes in accordance with
the tax laws of that state.
(d) The Minister of Finance may, with approval by the Knesset Finance
Committee, prescribe rules that obligate a partnership to file a return
certified by an auditor and adjusted by him for tax purposes.
(e) The Minister of Finance may prescribe, by Order, the form of the
certification and of the adjustment said in subsection (c).
(f) If a person did not attach the documents specified in subsection (b) to
the return, or if the return submitted by him was not certified and
adjusted as provided in subsection (c), then – for the purposes of
sections 145(b) and 158A(c) – he shall be treated as if he had not
submitted a return, unless he submits the said documents on another
date permitted him by the Assessing Officer.
(g) The Minister of Finance may, with approval by the Knesset Finance
Committee, designate acts that constitute tax planning that must be
reported, how they are to be reported and to what extent; in this
subsection, "act" – includes a transaction and a sale, including those to
which the provisions of the Real Estate Taxation Law apply.
Additional returns
131A. The Minister of Finance may, by regulations, prescribe additional returns
which a body of persons bound to make a return under section 131(a)(5) or
an Israel resident bound to make a return under section 131(a)(5b) shall
attach to the return under that section.

Report from auditor or audit union official
131B. An Assessing Officer may, if he found reasonable cause for doing so,
demand in writing from the auditor or from the audit union official who under
section 131 certified a balance sheet or adjusted and certified an adjustment
account for a body of persons, that he deliver to him a report on the extent
and findings of the audit carried out by him in respect of the particulars stated
in the Assessing Officer's aforesaid demand; in this section –
(1) "certified a balance sheet" –
(a) in respect of a company other than a cooperative society
affiliated to an audit union – the preparation of a report said in
section 109 of the Companies Ordinance;
(b) in respect of a cooperative society affiliated to an audit union –
the performance of an audit under section 20 of the Cooperative
Societies Ordinance;
(2) "Assessing Officer" – other than an Assistant Assessing Officer and a
Chief Collector;
(3) "audit union official" – as said in section 131.

Date for submission
132. (a) A return under section 131 shall be delivered to the Assessing Officer
not later than April 30 of each year.
(b) Notwithstanding the provision of subsection (a) –
(1) if a person's return is based on a complete set of double entry
accounts, then he shall deliver the return under that subsection
not later than May 31 of each year;
(1a) if an individual must submit an online independent return, then he
shall submit it until May 31 after the tax year in respect of which 202
the return is submitted;
(2) if a special assessment period was set for a person, then he shall
deliver the said return not later than five months after the day on
which that special assessment period ended.

Deferment
133. The Assessing Officer may, if it was proved to his satisfaction that there is
sufficient reason for doing so, defer submission of a return under section
132(a) or (b), all as the case may be, to a date which he shall set, on
condition that a person who obtains an aforesaid deferment submit, on the
date stated in section 132(a) or (b), as the case may be, an estimated return
of the said income, drawn up to the best of his ability to estimate.

Notification of beginning or change of occupation
134. If, in a particular tax year, a person opens a business, begins to engage in a
vocation or begins to carry on his business or vocation in an additional or in a
different place, or if he changes the type of his business or vocation, then he
shall – no later than on the date of the said beginning or change – so inform
in writing the Assessing Officer, in whose area of jurisdiction the business is
located or the vocation is exercised.

Power to exempt of filing of return
134A. The Minister of Finance may, with approval by the Knesset Finance
Committee, exempt – conditionally or unconditionally – the following from the
obligation to file a return:
(1) a person whose income is mainly work income, pension, or income on
which he paid tax under section 122;
(2) a person whose income is not derived from employment, business or
vocation, and does not exceed an amount three times the amount of
credit points under sections 34 and 36;
(3) a foreign resident;
(4) a person who received income from which tax was lawfully deducted at
the source or to which exemption from tax applies, and who – if not for
that income – would be exempt of the obligation to submit a return;
(5) a trustee, whether he is an Israel resident or not, who in Israel had only
income that is tax exempt or from which the full amount of lawful tax
was deducted, or assets the income of which is exempt of tax.

Exemption from return
134B. Notwithstanding the provisions of section 131, an individual who became an
Israel resident for the first time or a veteran returning resident, as said in
section 14(a), shall not have to submit a return as said in section 131 in
respect of all his income that was produced or accrued abroad or that stems
from assets abroad during ten years after the date on which he became an
Israel resident as aforesaid; the provisions of this section shall not apply to
income, in respect of which the individual requested – under the provisions of
subsection (a) of section 14 – that the provisions of the said subsection not
apply, and in respect of income that stems from an asset that the individual
received exempt of tax under section 97(a)(5) on or after January 1, 2007.