Israeli investment houses to report on US citizens' accounts

TASE tells brokers: We're examining FATCA's provisions and their significance.

The US Foreign Account Tax Compliance Act (FATCA), which requires non-US financial institutions to provide the US Internal Revenue Service (IRS) with details of bank accounts of American customers, will also affect foreign investment houses. Sources inform ''Globes'' that, two weeks ago, the Tel Aviv Stock Exchange (TASE) notified its members that they should prepare to implement FATCA at their institutions. TASE members have until Sunday, January 20, to confirm their awareness of the matter and that they are preparing for it. The TASE also instructed its members to inform the Ministry of Finance's FATCA review team proposals for implementing the guidelines.

"We're tensely waiting for implementation of the rules. This is a difficult task," said a source at a big investment house. "It will be a Sisyphean task for institutions to meet the strict provisions. Some of them have already hired accountants and advisers to help them prepare," said a top capital market source.

FATCA will come into effect at the end of 2013, at which point non-US financial institutions will have to inform the IRS about accounts held by Americans. FATCA's objective is to fight tax evasion.

More than 100,000 US citizens are estimated to live in Israel. Israeli banks and brokers will be required to notify the IRS about their accounts, even if the US citizens are Israeli residents. The institutions will be required to locate all US residents among their customers, and have them sign the filing forms. The rules could be problematic for many, given the contradictions in US regulations between and Israeli laws, and the heavy operating costs involved in implementing the provisions.

Israeli banks have been ready to implement FATCA for some time, even though it contravenes banking confidentiality rules. After lobbying by the Association of Banks in Israel, the Ministry of Finance intervened and established a committee to deal with the matter.

It now seems that the TASE has realized that it has to prepare too. In a notice to brokers, it warned, "The TASE and clearing companies are reviewing the provisions of FATCA and their significance. It is possible that the TASE or the clearing companies will have to sign an agreement with the IRS. Financial institutions in Israel will have to implement the FATCA provisions."

It is not easy identifying American customers, as they include not only US citizens, but also passport holders, and in some cases Green Card holders. The banks say that customer identification is quite difficult, and the task is even harder for investment houses, because they lack comprehensive databases about all of their products, especially products like exchange traded funds and mutual funds, for which there is no customer identification at all.

Last month, "Globes" reported that the Ministry of Finance was in talks with the US Department of Treasury to sign an agreement on the transfer of information about foreign residents. Such an agreement, which the banks and financial institutions would like, will allow the Israeli firms to only notify the Ministry of Finance, instead of working with the IRS, which is stricter.

Various sources told "Globes" that they agreed that everyone hopes that the Ministry of Finance and the US Department of Treasury will sign an agreement. "An agreement with Israel's Ministry of Finance will bring salvation to us all," said a source at an investment house.

"We strongly hope that there will be an agreement with the Americans, otherwise, this will be a complex and Sisyphean task for the financial institutions," said another source.

Published by Globes [online], Israel business news - - on January 15, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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