Fictitious invoices in the construction industry: this is how the method works

Suspicions against the contractor encouraged Ricky to once again flood the issue of fictitious invoices in the construction industry.

How does the method work, why is it so common in this particular field, how much can you gain (a lot) and what will you lose if you get caught?

We went out to check and tell

David Rosenthal

26/05/2022

Thursday, 26 May 2022, 10:25

• Share on Facebook

• Share on WhatsApp

• Share on Twitter

• Share on Email

• Share on general

• Comments

  Comments

The vehicle purchased by the contractor Oded Shrikki for his daughter (documentation on social networks according to section 27A of the Copyright Law)

Morning about two weeks ago in the city of Netivot.

Strong knocks on the contractor's door encouraged Ricky to disturb the serenity of his mansion.

Just a few days earlier, excitement gripped the family after he bought his daughter a 'modest' birthday present - a Lamborghini costing NIS 2.5 million.

What were investigators from the Blade 433 unit looking for at the hedonistic contractor?

Shrikki was questioned for about ten hours on suspicion of money laundering and distributing fictitious invoices in the hundreds of millions of shekels.

"I do not know about every and every invoice that comes out of the company, but I can tell you wholeheartedly that I have no connection to any criminals," he told investigators.

At the end of the day, will the investigation boil down to an indictment and will he be convicted?

Days will tell, and of course the presumption of innocence stands by him, but the suspicion that clung to him, as a building contractor, is not accidental.

According to data from the Tax Authority published a few days ago, one in three fictitious invoices received during 2021 originated in the construction industry.

Its data also show that the annual VAT loss to the state alone is about NIS 2.5 billion and in the national risk assessment the distribution of fictitious tax invoices has been ranked among the most significant phenomena in terms of money laundering risk. So how does the method work? In order to reduce its scope?

More on Walla!

Permitted for publication: Oded Shrikki is the contractor who is being investigated on suspicion of involvement in an economic affair

To the full article

What will the findings be in his case?

Oded Shrikki (Photo: Nir Peking)

The rationale behind the story is quite simple to understand, as explained by Advocate Moriah Siman Tov Binyamin, a criminal tax expert:

This is in order to increase the recognition of his expenses, and accordingly reduce the tax rate that will be required to pay.

"

Input tax is the VAT paid by the business owner for the purchase of services or products he performed for the business. However in the case of fictitious invoices - those that do not reflect any transaction or service, and their whole purpose is to increase the invoice recipient's expenses and input tax - no VAT is paid , Because no transaction has been executed, and no service has been provided by the same business owner.

And how does the method work in practice?

There are three main types of fictitious invoices, says Siman Tov Binyamin's partner, Adv. Kobi Dahan, who also deals with criminal law:

"Sometimes, for example,

the company on the other hand does exist and enjoys a handsome commission in exchange for cooperating with the matter of the false invoice."

The arrest shows that following an investigation by the Jerusalem VAT Investigations Department, suspicion arose that the company had deducted fictitious tax invoices in its books of account in the said amount between the years 2021-2020.

Who knows how many fictitious invoices were issued around buildings that were erected (Photo: ShutterStock)

Examples of cases where a contractor's name is bound in not incomplete fictitious invoices.

In another case, two young men were arrested on suspicion of offsetting and distributing fictitious invoices in the amount of NIS 400 million, with the amount of value added tax inherent in these invoices amounting to NIS 70 million.

The arrest requests indicate that the two, residents of Bnei Brak and Jerusalem, are suspected of involvement in no less than 287 different fictitious companies registered at a number of VAT stations throughout the country.

mistakes happen?

The contractor got confused and added zero to the invoice

The second type, Attorneys Siman Tov Binyamin and Dahan point out, is an invoice submitted for a transaction that actually took place - but the amount appearing on the invoice was increased and inflated. For example, in case On an expense of NIS 1,000,000. And there is another option, the two explain: a 'fictitious foreign' invoice, that is, one given for a completely real deal, and paid for all the consideration, but the person giving it is a stranger to the company that appears on it and is not allowed to issue an invoice on its behalf. That is, the recipient of the invoice pays all the tax to the issuer of the invoice, but the issuer of the invoice does not pay the transaction tax, since he is not affiliated with the company that issues the invoice.

As mentioned, this is a 'coup d'etat', which is very disturbing to the tax authority, which has been trying for years to combat the phenomenon, without much success.

A few days ago, the Authority announced that an inter-ministerial team headed by the Director General of the Ministry of Finance to combat black capital, has completed its work and will present its conclusions to the government. Invoice in an amount higher than NIS 5,000. For suspicious transactions - it will not be possible to deduct the VAT inherent in the invoices.

The system will assist in tracking and monitoring transactions in real time.

In doing so, the Authority hopes, it will deeply hurt the possibility of legally evading tax by issuing a fictitious invoice, and will reduce the volume of black capital and, as a result, the economic infrastructure for crime in Israel.

The invoice is fictitious but the punishment is very real

Is this the move that will save the state coffers from the prevailing phenomenon?

Days will tell, but in the meantime, not only the tax authority is gearing up for the war but also the courts, which do not hesitate to impose heavy penalties on convicts in such circumstances.

The term "fictitious invoice, by the way, does not appear in tax laws and is a legal term characterized by a variety of situations including those mentioned above. Often, the state files an indictment under section 117 (b) of the VAT Law - Fictitious invoices, An act with the aim of evading or evading payment of tax, is punishable by 5 years' imprisonment or double the fine.

In addition, today a fictitious invoice offense also includes an aspect of money laundering, which may lead to immediate forfeiture and confiscation of a significant portion of the personal capital accumulated by the offender, so that not only the fine will be large but also the ability to pay it significantly reduced.

Instead of a prison, in some cases, you can pay a ransom

Along with the aforesaid, the two explain that according to section 121 of the VAT Law, in certain cases and appropriate circumstances, the taxpayer will pay a ransom, and in return no criminal proceedings will be conducted against him. A kind of "extra fine". Committed tax offenses. That is, the taxpayer, in addition to removing the default, will have to pay an additional amount of money. The imposition of the ransom is at the discretion of the tax authority. Moreover, the fact that it is a short and effective procedure compared to conducting a full criminal proceeding, and the other obvious advantage is the additional amounts to the public coffers.

Can it end up behind bars?

Definitely.

Attorneys Moriah Siman Tov and Kobi Dahan (Photo: Yachz)

And there is one more thing you need to know, Attorneys Siman Tov Binyamin and Dahan explain: Apparently, the risk of punishment for these offenses rests solely with the issuer of the fictitious invoice, but this is a mistake - the Tax Authority does not hesitate to file indictments and criminal proceedings against taxpayers. Gave them fictitious invoices and thus committed an offense of deducting inputs on the basis of a fictitious invoice.The authority draws the legal seal to take legal action against 'innocent' taxpayers, since the ruling established an unclosed list of means of inspection that must be taken to avoid fictitious invoice receipt .In fact, the requirement from the dealer is to show that he has taken all measures in order to avoid receiving an invoice issued illegally.

Thus, among other things, the dealer is expected to check whether the issuer of the invoice has a certificate of withholding tax, a bookkeeping certificate, a photocopy of the identity card of the person who actually made the call and provided the service.

In addition, make sure that on the invoice submitted there is an accurate and detailed record of the service provided including what type of service, how many working hours, list of items purchased etc., unspecified invoices will not be recognized by the tax authorities and input deduction VAT.

• Real Estate

• In the country

Tags

• Fictitious invoices