Tax Compromise Payments and Administrative Fines

A tax compromise payment (referred to in the statute as "kofer kesef") is a payment that the Israel Tax Authority accepts from a person suspected of a tax offense, with the suspect's consent, in lieu of criminal prosecution. Under Section 221 of the Income Tax Ordinance, once the payment is made, all proceedings regarding that offense are discontinued. The decision is made by a Compromise Committee within the Tax Authority, and the compromise payment is made in addition to the tax itself. In 2024, 84 compromise decisions were issued totaling approximately NIS 8.5 million, and they were published along with the suspects' names. If you are under investigation, send us your case details and we will assess whether it is advisable to file a request, and when.

Most inquiries come when an investigation is already underway but no indictment has been filed yet:

• You were questioned under caution by the Assessing Officer's Investigation Unit or the VAT Investigation Unit, and the investigation is nearing completion.

• The investigating unit raised the possibility of a compromise payment, and you want to understand what it means and whether the amount is reasonable.

• The case has been transferred to the prosecution, and you want to know whether a compromise request is still possible.

• A compromise amount has been set for you, and you are considering requesting a reduction.

• You are suspected of a customs offense, for example an incorrect declaration of the value of goods on import.

• You received notice of an administrative fine, for example for a late annual return, and you are considering requesting its cancellation.

Anyone who has not yet been investigated and has discovered unreported income is in a different situation. A compromise payment is not the first step for them, and they should first read the page on Voluntary Disclosure and Asset Regularization.

Each of the tax statutes authorizes the Director to accept a compromise payment in lieu of criminal proceedings, with the suspect's consent. The following are the sections under which the Compromise Committees operate:

• Section 221 of the Income Tax Ordinance applies to offenses under Sections 215 through 220. The compromise amount may be up to twice the maximum fine that may be imposed for the offense.

• Section 121 of the Value Added Tax Law limits the compromise to the maximum fine. After an indictment has been filed, a compromise may be accepted only with the consent of the Attorney General or a person authorized by the Attorney General. The Director may also condition the compromise on an undertaking to refrain from committing an offense for up to three years, secured by a bond.

• Section 231 of the Customs Ordinance limits the compromise to the maximum monetary penalty. If the goods are subject to forfeiture, the Director may forfeit them when granting the compromise.

• Section 101 of the Land Taxation Law and Section 25 of the Purchase Tax Law grant parallel authority with respect to those taxes.

Compromise Payment and Administrative Fine: Two Distinct Tracks

An administrative fine is imposed for technical violations prescribed in regulations under the Administrative Offenses Law, 5746-1985 — for example, late filing of an annual return under Section 216(4) of the Ordinance. The amount is fixed by the regulations and is doubled for a repeat offense. A person who receives a fine notice may request that an authorized prosecutor cancel it within 30 days (Section 8A of the Law), or notify within the same period that he or she wishes to stand trial (Section 8(C)). The fine is payable within 60 days (Section 16), and a cancellation request does not extend the deadline. A compromise payment, by contrast, deals with offenses that were the subject of an investigation, and its amount is determined by the Committee based on the circumstances of the case.

The Tax Authority has Compromise Committees for income tax and land taxation cases, and separate committees for VAT, customs, and purchase tax cases. The relevant considerations were published in 2004 by a joint committee of the Tax Authority and the State Attorney's Office, and the Authority reiterates them in the decisions files it publishes.

Factors weighing in favor of a compromise include a relatively small monetary scope, secondary involvement in the offense, difficult personal or health circumstances, dependents who rely on the suspect, and rectification of the default — i.e., payment of the tax and amendment of the returns. Factors weighing against a compromise include prior convictions or a prior compromise, a large scope and long duration of the offense, an offense committed by a professional such as an accountant or tax adviser in the course of their duties, a need for deterrence in a particular industry, and offenses under other statutes that accompanied the tax offense. A previous refusal to pay a compromise that was offered is also a factor weighing against.

Basis of Calculation in Income Tax and VAT Cases

There is no official tariff. According to the Tax Authority, in income tax cases the emphasis is on the unreported turnover, and in VAT cases on the tax amount. Examples from the 2024 decisions file:

• Omission of income of approximately NIS 850,000 during 2015–2018: a compromise of NIS 170,000 (Income Tax Decision 2/24).

• Fictitious invoices inflating expenses by approximately NIS 900,000: a compromise of NIS 250,000 (Income Tax Decision 1/24).

• Concealment of transactions with a tax amount of NIS 1,518,667: a compromise of NIS 262,000 (VAT and Customs Decision 3/24).

• Concealment of transactions with a tax amount of NIS 179,474: a compromise of NIS 35,000 (VAT and Customs Decision 4/24).

The reasons recorded by the Committee are recurring: the amount of the offense, the recommendation of the investigating unit, rectification of the default, and personal or health circumstances. A decision in another case does not determine the outcome of your case, but it provides an order of magnitude.

Yes. The Tax Authority publishes the Compromise Committee Decisions File. In the 2024 file, published on July 8, 2025, the suspect's name and occupation, the offense section, the offense amount, the tax years, the decision, and a summary of the reasons are listed. It contains 84 decisions: 37 in income tax and land taxation cases and 47 in customs and VAT cases. Only approved requests are published. A compromise is not a conviction, but anyone filing a request should know in advance that their name will appear in the file.

1. You bring the summons to investigation, the information provided to you during the investigation, and the returns for the years in dispute. First, we assess where the case stands: at the investigating unit, at the prosecution, or after an indictment has been filed.

2. We calculate the tax in dispute and determine how to rectify the default: amended returns and payment, or a tax assessment agreement. Rectification of the default appears as a stated reason in many of the published decisions.

3. We prepare a written request setting out the facts, the corrective steps taken, and the personal and health circumstances, accompanied by supporting documents. At the conclusion of the investigation, the investigating unit recommends either an indictment, a compromise, or referral of the case to a civil assessment, so the request should be submitted before the recommendation is made.

4. We present the request to the relevant officials at the Tax Authority, and if the case has already been transferred to the prosecution, there as well. If a compromise amount is set, we compare it to published decisions in similar cases.

5. After the decision, we settle the civil side, because the compromise payment does not replace the tax.

Compromise requests are handled by Adv. and CPA Shlomi Vaknin and his firm's team. Shlomi, the firm's founder, served for nearly a decade as a National Inspector in the VAT Professional Division of the Israel Tax Authority, and until he established the firm in 2024 he was a senior partner for 18 years at a tax law firm. A compromise request requires calculating the tax and the rectification of the default, which is why the CPA qualification is particularly important here.

When the case also involves a civil tax assessment, the team handles it in parallel.