The virtual currency Bitcoin introduces considerable difficulties for authorities in Israel and around the world, due to its unique characteristics: no country or central bank is responsible for its issuance, its exchange rate is extremely fluctuant, it’s not based on any known economic model, and it can be traded anonymously. Advocate Paul Landes, The head of the Israel Money Laundering and Terror Financing Prohibition Authority, recently explained the difficulties in dealing with Bitcoin, due to the lack of appropriate legal measures specifically tailored to the challenges that Bitcoin raises. According to Adv. Landes, “there is a huge loophole in laws around the world, because we are talking about a combination of Internet technology, a wide variety of criminal products, and also a currency that does not belong to any country - currency that you can purchase at [currency] exchange vendors. Purchase and sale of Bitcoin leave no traces, these [transactions] are not reported and are difficult to track."

In light of this, the Israeli Tax Authority is now contemplating how to devise a model for collecting tax on transactions based on the virtual currency. The Tax Authority asserts that an Israeli resident who earns profits from Bitcoin, must report those profits and pay the applicable taxes pursuant to the Israeli Income Tax Ordinance. Former Income Tax Commissioner, Advocate Tali Yaron-Adler, revealed that her firm has recently received inquiries from potential clients, who are interested in promoting Israeli regulation on Bitcoin in order to avoid potential tax or money laundering violations in their dealings in the virtual currency. According to Yaron-Adler, “anyone who thinks they can stop progress through legislation or sanctions – is wrong and ignores reality. As the years go by, the virtual world occupies a larger part of [overall] business activity, and the virtual currency – [be it] the Bitcoin or other currency – is included [in this matter].” Source: Globes (In Hebrew, by: Ela Levi-Weinrib)