Various local branches of the Israel Tax Authority have sent out letters to those they suspect are trading bitcoin without reporting it. The tax agency demands in those letters that the recipients will divulge all of their involvement in the cryptocurrency market including all past transaction history and current holdings. People are being asked to list all exchange accounts and wallets they ever had and report their trade earnings. Additionally, the agency demands that people will reveal if they are engaged in mining.
Check Your Mailbox
The agency appears to be be very confident in its suspicions as some local tax offices have not even bothered with sending out the letters with demands for information, instead they just opened a business case for anyone they think is trading bitcoin. Those people are simply informed they must pay income taxes as business owners now, fill reports retroactively back from 2013 as well as keep balanced books and report taxes on salaries to employees as any other business, as if they were restaurant or factory owners.
Earlier this year the tax agency issued a circular on the matter, declaring that bitcoin is an asset, and thus anyone trading it must pay the capital gains tax of 25% and anyone considered to be running a business must also pay the VAT of 17%. The Tax Authority commented to Israel’s Globes newspaper: “Following the publication of the circular, which reflects the Authority’s position on the taxation method of trading and investing in virtual currencies, the Authority is working to locate those active in the field who do not manage a case in the tax authorities. We recommend that those who conduct unregistered activity in these areas take advantage of the existing channels to settle their issues before they will have to endure the unpleasantness that accompanies enforcement. ”
Monitoring Social Media Groups
The Tax Authority is not exposing how it got its hands on a list of bitcoin traders in the country to check if they report or not, but there a few obvious ways. The banking system in Israel is very hostile to any bitcoin dealings, and the banks thus probably proactively report all inbound and outbound transactions involving known accounts of exchanges abroad as possible money laundering and tax evasion. And the few local trading avenues available to Israelis can easily be compelled to hand over a list of their clients with a warrant.
Investigators have used more creative means, however, people familiar with the tax scene told the Globes newspaper. They claim that undercover agents are monitoring local groups for peer to peer buying and selling of bitcoin and other cryptocurrencies on Facebook, Telegram and Whatsapp. The information gathered there is said to be sophisticatedly cross-referenced with other available data.