Israel Tax Authority targets fictitious invoices

The initiative to tighten company reporting is gaining momentum: The Israel Tax Authority is joining the move, and is even demanding that the transfer of ownership in a company and any significant change in its holdings be conditioned on receiving the green light from the tax authorities, “Globes” has learned.

The Israel Tax Authority is also considering significantly tightening sanctions on controlling shareholders who sell companies but do not immediately report this to the Tax Authority.

The tightening measures being promoted by the Authority are intended to apply mainly to companies known as shelf companies. These are usually sole proprietorships and small private companies, which may be used by criminals to distribute fictitious invoices.

The move comes in the wake of the reporting reform being promoted by the Ministry of Justice Corporations Authority, in which changes in the identities of shareholders and directors will not take effect until the Registrar of Companies confirms that the company has reported them.

This is in contrast to the current situation, in which companies are allowed to appoint directors, add investors and allocate shares, and can report this to the Registrar of Companies retrospectively, within 14 days, and not as a condition for approving the action.

The Israel Tax Authority supports the Corporations Authority’s initiative, and sees it as an opportunity to intensify the fight against fictitious invoices, which cost the state billions of shekels annually.

The 2023 State Comptroller’s report indicated that the ability to report on new shareholders two weeks after they have already entered the company allows criminals to add straw men as company officials and use them to distribute fictitious invoices. These straw men later disappear from the company. It is estimated that 80% of fictitious invoices are distributed this way.

Criminals take over inactive companies

The Israel Tax Authority is concerned that the existing reporting system allows criminals to easily take over inactive companies by buying their shares for tiny sums of a few thousand shekels. Thus, instead of opening a company in an orderly way through the Registrar of Companies and VAT – a process that requires regulatory inspections and approvals – the same criminals enter the front door of an existing company and turn it into a conduit for distributing fictitious invoices. Instead of supervision, the criminals receive a blank check to defraud the state.

Officials in the Tax Authority describe a situation in which, when illegal activity surrounding the distribution of invoices is identified, those summoned for investigation are generally the previous owners of the company.

This is because there is no requirement to report in a timely manner to the Registrar of Companies about the transfer of ownership in the business, and the information that investigators extract from the Registrar regarding the holdings in the company is not up-to-date.

The tightening of reporting on a change in the identity of shareholders from a declarative to a constitutive format, meaning that the reports will become a condition for the change in the company to take effect, and will have to be made immediately, is intended to ensure that the information will be updated and transmitted in real time to the tax authorities as well.

The move is not aimed at the hundreds of public companies traded on the Tel Aviv Stock Exchange, nor in the vast majority of private companies that operate legally. So no change is expected with regard to the routine purchase of shares in such companies. The Tax Authority is targeting those shelf companies that have halted activities, and instead of closing down, are being sold to criminal elements.

Companies are advertised for sale on Facebook and TikTok

Such companies are sometimes sold by posting ads on social networks such as TikTok and Facebook. The perpetrator who takes over the company usually purchases between 50% and 100% of its shares – a pattern of behavior that is very unlike the normal trading of the general public, who invest normatively in securities.

The Tax Authority is therefore striving for a situation in which information about changes in holdings in the company will be reported to the Registrar of Companies in a binding and immediate way, and will then be transferred to them digitally. Such an online interface already exists for declarative reports, which are made late (if at all), and the Tax Authority wants to expand it.

At this stage, the Tax Authority is aiming for the stricter reporting method to apply to any transfer of 50% of shares, but the exact transfer rate may change. Either way, after receiving the information from the Corporations Authority, the Tax Authority plans to review the new shareholders and decide whether to approve them. The dramatic change will be that the Tax Authority will now have veto power, and without its approval, the change in the company will not be updated and will not be implemented.

Stricter and more deterrent fines

Another move on the agenda is a significant tightening of the sanctions on those who sell companies to criminals. Currently, company owners are required to update the Tax Authority with changes in the company’s details, but the sanctions for failure to report are weak – a NIS 500 fine. The idea is to be stricter, and to impose fines of a size that will be a significant deterrent (the exact amounts have not yet been set) in any event of a violation of reporting on the sale of the company.

The Tax Authority’s involvement in the move is part of a reform launched last year under the name Israel Invoices, which strives to make it more difficult for dubious businesses to offset VAT payments. According to the reform, every invoice over NIS 20,000 requires receiving an allocation number from the Tax Authority for the purpose of deducting VAT.

Thus, as part of the pilot phase of the reform, fictitious invoice transactions worth NIS 8 billion were thwarted in 2024. The Tax Authority expects that by 2025 they will be able to thwart fictitious transactions worth NIS 1 billion per month – amounts that are supposed to flow into the state coffers.

Fierce controversy, especially in the tech industry

The reform in corporate reporting is currently in an early stage of public participation. The Corporations Authority has issued a call for comments, and is promoting the issue in cooperation with the Advisory and Legislative Division and the Policy and Strategy Planning Division at the Ministry of Justice.

The move is already causing intense controversy, especially in the tech industry. There, the tightening of reporting is being criticized, and it is claimed that it could paralyze urgent appointments and capital raising for startups and tech companies.

Among other things, lawyers in the industry believe that the additional bureaucracy and possible delays in receiving approvals from the Companies Registry will mean that foreign investors will not be able to appoint directors on their behalf in their portfolio companies in a timely manner. Those investors may even demand that their investment funds be deposited in trust until registration is completed, meaning the company would not receive the money it needs on time. The backing that the Tax Authority is currently giving the reform is therefore expected to increase the controversy on the move.

Published by Globes, Israel business news – en.globes.co.il – on August 6, 2025.

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