WikilLeaks recently said that a former Swiss banker handed it two CDs reputedly containing details on up to 2,000 wealthy individuals and corporations. It appears that these CDs contain the names of Israeli residents, who did not report the existence of their bank accounts in Switzerland nor the income they derived in these bank accounts. This matter raises the question of how much Israeli residents should be concerned by the recent development.
The exchange of information (EOI) procedure between Israel's Tax Authority and foreign tax authorities is governed by the EOI articles in Israel double taxation conventions (DTCs). Israel currently has 51 DTCs in force. It should be noted that the content and the scope of the EOI article differs in each DTC.
As the newsletter discussed bank accounts of Israeli residents in Switzerland, it is the EOI in the Israel-Switzerland DTC that should be discussed. Article 26 of that treaty has a very narrow scope and is limited to information which is at the disposal of the tax authorities under their respective taxation laws in the normal course of administration. The result is that Israel and Switzerland cannot exchange bank information nor information obtained from third parties, because this information in not at the disposal of the tax authorities in their normal course of conduct.
In recent years, tax authorities have started to exchange information electronically. Automatic EOI is a procedure in which CDs are sent to Israel by certain foreign states and includes information regarding Israeli taxpayers deriving income (mainly passive) in that country.
In the WikilLeaks case, it should be noted that even if these CDs are received by the Israel Tax Authority, there is still a long way until it can tax those Israeli residents. It may be that Israel will need the bank documents related to these bank accounts - but, as noted, there is no practical way that the Swiss tax authority will agree to furnish such data under the current treaty.
Nevertheless, the best move for Israeli residents who have foreign bank accounts unreported to the Israeli tax authority is to issue a voluntary disclosure with the tax authority.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
The writer is international tax manager at Ziv Shron Law Office.
Published by Globes [online], Israel business news - www.globes-online.com - on January 25, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011