The Tax Authority in Israel is targeting the gambling market in its fight against tax evasion and undisclosed income. Currently, the Tax Authority is involved in several tax disputes with poker players who frequently take part in overseas tournaments. The dispute is regarding how their income has to be taxed and the way they rack up and list their expenses.
Before targeting poker players, the Tax Authority carried out a comprehensive research of the gambling market and poker industry in the country. Through the research, they collected information on the poker players in the country, the tournaments they played in and the amount of tax for which they can be assessed. The study was followed by arrest of suspected tax evaders by the Tax Authority and issuing non-criminal tax assessments for many after the conclusion of their intensive investigation.
The Tax Authority suspected that there were millions of shekels not being reported from a number of industries including poker. Before the investigation commenced, the Tax Authority had a list of poker players who had been on their radar for a number of years. These poker players allegedly made significant amounts of money playing poker over the years and had not paid their taxes.
The first stage of the dispute involved how poker income was to be classified. While poker players classified their income as income obtained from lotteries, prizes and gambling which is to be taxed at a 35% rate, the Tax Authority did not accept this interpretation and made it clear to the players that the income won in tournaments has to be interpreted as income from business dealings which is taxed at a 50% rate.
The next stage of the dispute dealt with whether the Tax Authority would recognize expenses such as air fare, hotels and conveyance as necessary expenditures in generating income. The Tax Authority did not dispute this and the issue was quickly put to rest. However there still exist a number of issues that Israeli poker players are not happy with. One of the key issues is that the Tax Authority is not willing to consider the payments poker players have to make to their financial backers as expenses. This deal usually results in the financial backer funding the majority of the buy-in for the poker player in exchange for a percentage cut.
Advocate Sharon Fishman, who is handling several tax disputes involving this issue, says that an administrative decision was taken by tax authorities to target poker players only recently due to readily available information regarding the earnings of the Israeli players from websites such as the Hendon Mob. There are reports that the Tax Authority might force poker players in Israel to pay back dated taxes based on their poker revenue over the years.