A fake invoice costs the business that received it
On 12 August 2026, details were released of an investigation by the Jerusalem customs and VAT investigations unit into a shareholder and director of a construction company, a resident of Ramat HaSharon. The suspicion is that between 2022 and 2025 the company's books recorded tax invoices suspected of being fictitious, worth roughly NIS 26 million, carrying about NIS 4 million in input VAT that was deducted. He was brought before the Jerusalem Magistrates' Court and released under restrictive conditions, among them a cash deposit, guarantees, a 180 day travel ban and a bar on contacting others involved. No indictment has been filed, and he is presumed innocent.
The numbers are large and the case is unusual. The legal rule behind it applies to every osek murshe who deducts input VAT. Issuing a fictitious invoice is a criminal offence. Receiving one, without knowing anything about it, costs you the deduction.
Lawful or unlawful, with nothing in between
VAT law separates an invoice issued lawfully from one that was not. There is no middle category that lets you deduct part of the tax because the underlying transaction was real. When the invoice is unlawful, the input VAT claimed from it is disallowed, and the debt lands back on the business that claimed it, with interest, linkage and sometimes a penalty.
Good faith on its own is not a defence. The burden of showing reasonable conduct sits with the business claiming the deduction, and the test is objective: not what you believed, but which checks you ran before the invoice went into your books. A business that skipped the accepted checks cannot fall back on not having known.
What this means when you take on a new supplier
The checks that count as reasonable are not complicated, and they belong to the moment you onboard a supplier rather than the moment of an audit. A valid proper bookkeeping certificate and a valid withholding tax certificate. A match between the supplier name and VAT number on the invoice and the registration at the Companies Registrar or the Tax Authority. A payment account registered to the supplier and not to some other person. A match between the purchase order, the delivery note and the invoice on items, quantities and dates. Above all, commercial sense: a price well below market, a vague line reading "consulting services" with no detail, or a supplier asking for cash or payment to a third party account, each is a reason to stop.
For invoices that require an allocation number, the number adds a layer of verification. It is a condition for deducting the input VAT, and it ties the invoice to the supplier's own reporting inside the Tax Authority system. It is not a character reference for the supplier, but its absence on an invoice that needs one is reason enough not to deduct.
Where this lives in your files
Documenting the checks is worth as much as running them. A copy of the bookkeeping certificate, the date you checked it, the email in which the supplier confirmed its bank details, all of it belongs in the supplier file rather than in your memory. In an audit three years later, that is the difference between showing a procedure and saying everything looked fine at the time.
Stories like this keep appearing for a reason. Fictitious invoices are the main justification the Tax Authority gives for the Israel Invoice model and the stages planned after it, so enforcement and infrastructure keep tightening in the same direction. A business deducting meaningful amounts of input VAT can assume the other side of its reporting is being checked anyway. The input VAT guide covers what can be deducted and what is disallowed from the start, before the question of whether an invoice is genuine even comes up.