As soon as next year, the Internal Revenue Service (IRS) might offer its Israeli counterpart a list of Israeli citizens who are not US nationals and who own deposits in US banks. The measure is contingent on the approval of a regulation proposed by the IRS.
The proposed regulation expands reporting obligations to foreigners from all countries of the world. Currently, only details on the accounts of Canadians, who have been covered by reporting requirements for the last five years, have been provided to their government.
The regulation in question is IRS Regulation 126100, which is currently undergoing hearings. The IRS said it intends to furnish the tax authorities in foreign countries with information on their citizens' US account holdings. This is contingent on the establishment of an information exchange agreement between the US and the other country. Israel has such an arrangement with the US, based on an agreement designed to prevent dual taxation.
At the same time, if the Americans demand reciprocity, they might receive a negative answer from Israel. Israeli law prohibits banks from disclosing comprehensive information on their clients to the income tax authorities, due to banking secrecy regulations.
The Israeli Income Tax Authority is not familiar with the details of the US proposal, and said that if the regulation is passed, “there will be a problem with reciprocity”.
It is not yet clear if and when the regulation will go into effect. US and foreign banks are exerting heavy pressure on the IRS to shelve the proposed regulation.
The banks argue that the regulation will alienate depositors. The banks claim that Canadian depositors, for whom reporting requirements were instituted five years ago, proceeded to withdraw money from US banks.
The regulation is due to go into effect on December 31 of the year in which it is approved.
Published by Israel's Business Arena on 22 April, 2001