Tax Watch on Luxury Items Nets Evaders

Sociologists invented the concept of “conspicuous consumption” -eye-catching displays of luxury to gain social status, but now the Israeli Tax Authority has turned it into a tool for catching tax evaders.

Recently, ITA investigators were duly dazzled by the purchase of a $2.86 million Patek Philippe wristwatch in a foreign country, by an Israeli who reported his income at only a little over $17,000 a year.

Information-exchange agreements with 50 different countries enables the Tax Authority to find out about such bizarre purchases.

“A European country sent me information, saying, ‘Your resident bought a luxury watch here from a European company’,” Yariv Aviram, a CPA who worked for the ITA at the time, in 2016, told Globes.

“The country checked with all the companies selling this watch there, and saw that many foreign residents had bought the watches, so it sent the information about those purchasers to all the countries involved. It was spontaneous information. The country sending it has no interest in that information, because it can’t tax an Israeli resident.

“What I found out when I checked this taxpayer – his ID number – was astounding. I saw he had no file whatsoever at the Tax Authority. He didn’t make a report as a self-employed person. The only income he reported earning was NIS 60,000 a year. There was no hesitation at all, it went straight to the investigations department,” Aviram said.

The case was unique only in the amount of money involved. But suspicious conspicuous consumption on a lesser scale is common.

“Israelis really love expensive watches, and the amount of information received by the Tax Authority about Israelis buying watches overseas is really large, especially in Europe. The amount of this information is significant, compared with the information about purchases of other luxury items. We get 20 reports a year containing information about purchases costing hundreds of thousands of euros per watch,” said Aviram.

Needless to say, the tax evasion is not limited to high-priced watches.

“We also got reports about luxury cars purchased overseas. We got information about all sorts of Israelis living overseas for short periods who still owe tax in Israel, and who also have large overseas homes. They have a high standard of living, and buy luxury items. Information also came in about people entering the airport overseas and declaring amounts of cash that they are carrying. You can declare over €10,000 at a European airport, and then it turns out that this money wasn’t declared in Israel.”