Barclays Israel again questioned on tax evasion
The Tax Authority and Barclays Israel CEO Leonard Rosen are disputing the bank’s VAT liability.
Barclays Israel CEO Leonard Rosen was summoned back for additional questioning by the Israel Tax Authority, following the testimony he gave when the alleged tax evasion at Barclays Israel was first reported six months ago. Also summoned for questioning was Regev Itzhaki, CPA, a partner in the direct taxation department at Ernst & Young Israel accounting firm, which has Barclays Israel as a client. As far as is known, Itzhaki is the party working directly with Barclays Bank in the UK on all matters pertaining to the bank’s tax liabilities in Israel.
Informed sources told “Globes,” “Barclays’ global tax group is located in London, and works directly with the bank’s accountants, Ernst & Young. Barclays Israel and its management are not involved at all in tax policy.”
Last July, Israel Tax Authority VAT investigators raided the offices of UK bank Barclays Bank in Israel, collected documents, and summoned a number of the bank’s senior officials for questioning.
The investigation is concentrating on the classification of the bank’s revenue in a number of deals with VAT-exempt Israeli companies. The Tax Authority and Barclays Bank have been holding discussions on this matter for many years. The dispute between the parties concerns the place where the bank’s revenue is created. Barclays Bank provides investment banking services to companies.
As reported in “Globes,” a few years ago, the Tax Authority asked Barclays Bank to pay VAT on a number of its deals, claiming that the revenue involved was created in Israel, and the party benefiting from it was Israeli. By law, payment for services provided to an overseas company is exempt from VAT.
The company reported the deal to the Tax Authority in its periodic reports, but noted that the service was provided to an overseas company, and was therefore VAT exempt. In the case in point, however, the party actually receiving the service is resident in Israel, and is therefore subject to VAT.
Barclays Bank considered its tax exposure before it entered Israel in 2010 through a query to the Tax Authority requesting a pre-ruling, and received instructions about tax-exempt deals.
As part of its dispute with the Tax Authority, the bank is claiming that it is a branch of Barclays Bank, a UK company, some of the services were provide to overseas companies, the revenue was generated overseas, and the deals were therefore VAT-exempt.
Given this background, the case was handled as a civil affair in the VAT department. As far as is known, the bank cooperated with the Tax Authority, gave the Tax Authority the documents it requested, explained its actions and position on the place where the revue was created, and has not yet obtained a decision about its VAT liability in any of the disputed deals.
Several months ago, the Tax Authority decided to step up its handling of the affair. The case was transferred to the criminal department, and the bank’s offices in Tel Aviv were raided. Even then, a Tax Authority source told “Globes” that what was involved was an examination, not an investigation, and that the bank was cooperating.
The source added that although the investigation had ostensibly been made a criminal investigation, in practice, the contacts with the company were continuing on the same format as before, and that it was possible that the affair would wind up being handled in the civil sphere.