Bethel Finance: Your Taxes: Israel Tax Authority attacks fake trust

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Bethel Finance news:
On January 22, the Israeli Tax Authority (ITA) announced that a 62-year-old man suspected of managing a phoney trust with a view to evading tax has just been remanded by the Tel-Aviv Magistrate’s Court. Apparently, he claimed tax breaks for trust monies that he enjoyed together with other foreign residents. There followed an investigation and a raid on his home, in which many documents were seized.

In the investigation about his fiscal residence, the individual confirmed that although he had lived off and on abroad for a long time, for business reasons, he returned to his home in Israel every weekend. This made Israel his center of living, according to the ITA announcement.

With regard to the trust, the individual apparently claimed he was the beneficiary, although its objective was “education and food for children around the world.”

The trust was formed by a lawyer abroad but the individual contributed assets to the trust, making him a settlor (grantor) according to the Israeli tax law. The trust apparently transferred money to the individual over the years.

The individual’s accountant apparently stated that “total support from the trust in 2005 amounted to $1,004,490.” This amount was apparently not reported to the ITA. The individual evidently “took a chance” by not reporting the “dividend” he received from the trust. They relied on an opinion given to the individual verbally, according to the ITA announcement.

In addition, the ITA investigation found that the trust was phoney because the individual was considered to be the settlor, and the trustee taking decisions, as well as the beneficiary.

The ITA announcement states that the essence of a trust is an arrangement in which a trustee holds assets for a specific purpose, and acts for that purpose for the benefit of beneficiaries. If the settlor is involved in taking decisions which the trustee ought to take, this is not a trust as defined in the law, and the individual is taxable on income arising, according to the ITA announcement.