Representation in VAT Investigations

VAT investigations are conducted by the Customs and VAT Investigation Division of the Israel Tax Authority and deal with suspected violations of the VAT Law — for example, issuing an invoice without an underlying transaction or deducting input tax without a valid document. When such an act is committed with the intent to evade tax, Section 117(b) of the Law prescribes a penalty of up to 5 years' imprisonment, and up to 7 years in aggravating circumstances (Section 117(b2)). If you have been summoned for questioning or investigators have arrived at your business, call us before you give a statement.

• Customs and VAT investigators arrived at your business, requested documents, or seized computers and accounting records.

• You received a summons for questioning under caution, or a summons to give testimony about a supplier or a client.

• A supplier from whom you received invoices is under investigation, and VAT authorities disallowed your input tax deduction or demanded double tax from you.

• An employee or accountant at your business was questioned, and you want to know the exposure of the business and its directors.

• You were arrested, or a family member was arrested, in a VAT investigation, and a detention extension hearing has been scheduled.

• You received notice that the case has been referred to the prosecution, and you have 30 days to request a pre-indictment hearing.

A fictitious invoice is an invoice that does not reflect a genuine transaction between the party that issued it and the party that received it. The law addresses it through two tracks that can operate in the same case: criminal, carrying a penalty of up to 5 years' imprisonment and up to 7 in aggravating circumstances (Sections 117(b) and (b2)); and civil, involving disallowance of the deduction and a double-tax demand (Section 50). The offenses, the defense available to a party who was unaware of the invoice, and the deadlines for appeal are explained on the page Fictitious Invoices Attorney.

An investigator authorized by the Director may enter any premises that are not exclusively a private residence, seize goods, ledgers, and documents where there is a suspicion of an offense, question any person, and require you to appear and produce documents (Section 109(a) of the VAT Law). The investigator also holds the powers of a police officer for the detection of offenses (Section 109(b)). Alongside these powers, the law sets several limits:

• Investigators may not, on their own initiative, question the spouse, children, or parents of the taxpayer (Section 110).

• A document or ledger that was seized and that you need in order to comply with a legal obligation may be inspected or copied, and you may request its return (Section 111(ט)).

• Seized goods must be returned if no indictment (in the language of the statute: a complaint) has been filed and no compounding payment has been made within 6 months, unless the Magistrates' Court extends the period by an additional 6 months (Section 111(ה)).

• A detainee must be brought before a judge within 24 hours (Section 29 of the Arrests Law), and is generally entitled to meet with an attorney (Section 34 of the same law).

During a search, do not delete files, alter records, or coordinate statements with suppliers or employees. Ask to see the warrant if one exists, request a list of items seized, and call an attorney.

1. In the initial consultation we determine which unit is investigating, in what capacity you were summoned, and what was seized. Bring the summons, the list of seized items, and any statements you have already given, if applicable.

2. Before the interrogation, we reconstruct the transaction chain from the documents: purchase order, delivery note, completion confirmation, means of payment, and the entries in the books. This way we know what can be explained with a document and where it is better not to guess from memory.

3. For the interrogation itself, the decision whether to give a statement — and to what extent — is made in advance. A suspect is entitled not to answer questions that may incriminate him, but silence may strengthen the prosecution's evidence, so there is no single answer that fits every case.

4. If you were arrested, we represent you at the hearing in the Magistrates' Court and seek release on conditions. At the same time, we request the return of documents and computers the business needs in order to continue operating.

5. When the case is referred to the prosecution, we file a reasoned request within 30 days of receiving the notice (Section 60A of the Criminal Procedure Law), and also handle the double-tax demand or the assessment issued in parallel.

In some cases it is possible to seek closure of the proceedings through a compounding payment under Section 121 of the Law. When this option is available and what it costs — including publication of the decision in the suspect's name — is explained on the page Compounding Proceedings and Administrative Fines.

VAT investigations are handled by Adv. and CPA Shlomi Vaknin and his firm's team. Shlomi served for nearly a decade as a national supervisor in the Professional Division of VAT at the Israel Tax Authority. In an invoice case, he personally reviews the accounting entries and the input tax deductions before deciding what to present to the investigators.

The team also handles the civil side that runs parallel to the investigation, such as appeals against double-tax assessments or other tax assessments.