Sources inform ''Globes'' that the economic social cabinet, chaired by Prime Minister Benjamin Netanyahu, will soon discuss and approve the information sharing agreement between the Israel Tax Authority and US Internal Revenue Service (IRS). A decision by the economic social cabinet has the same validity as a decision by the full cabinet. The agreement with the IRS has not yet been signed, but cabinet approval to move forward on the talks should facilitate the signing of the agreement.
The economic social cabinet was due to discuss the agreement at Monday's meeting, but the discussion was postponed for technical reasons, and will soon come up for approval. "Globes" has obtained a copy of the document detailing the pending agreement prepared by the Ministry of Finance, which will be the basis for the discussion.
The agreement will regulate the sharing of information between the Tax Authority and the IRS. The Tax Authority will obtain information from Israeli financial institutions, including the banks about the financial assets held by US persons (citizens, residents, Green Card holders, etc. as defined by the US authorities), as well as financial assets held by companies in which US persons have material stakes. Sources believe that Israel will sign similar agreements with other countries in the future.
The agreement will be an alternative to the provisions of the US Foreign Account Tax Compliance Act (FATCA), which requires non-US financial institutions to sign the agreement directly with the US authorities to send them information about American customers.
As "Globes" has reported, the new agreement will be reciprocal. "The agreement will include an option under which, subject to certain conditions, information will be sent from the US tax authorities to the Israeli tax authorities about the income of Israeli residents in the US," states the document.
The document predicts that the agreement will boost Israel's tax revenues, because the Tax Authority will obtain information about Israelis' financial assets in the US. It cautions, however, that the amount of these revenues cannot be estimated.
It seems, however, that the sharing of information between Israel and the US is not equitable. While the Israeli authorities will automatically send the US all information about US persons, the US authorities will only send information to Israel in special cases. Israel is not the first country to sign such an agreement: the US has similar agreements with the UK, Denmark, France, Japan, and Spain, and more countries have expressed a willingness to sign such agreements in the future. The agreement with Israel will include provisions for protecting the information's confidentiality and for restricting its use by the IRS, due to privacy concerns.
The agreement's progress does not end with the cabinet approval. The Ministry of Finance must handle several legislative amendments for the agreement to be implemented, such as a section for the sharing of information through an amendment to the Law for the Prohibition of Money Laundering (5760-2000). The ministry will also have to notify the public about the agreement and that the government will share information about US persons' bank accounts in Israel with the IRS. The document states that the Ministry of Justice does not object to agreement and the necessary legislative amendments needed to implement it. It adds that a multimillion shekel budget supplement and additional personnel will be needed to implement the agreement.
The document is appended with an opinion by State Revenues Administration legal adviser Talia Doshan-Gadish, who says that there will be serious repercussions to banks that do not sign an agreement with the IRS (the US will sanction banks that do not cooperate with it). She adds that signing the agreement is better than the alternative in which each bank signs a separate agreement with the IRS.
Adv. Yael Grossman, an expert in money laundering, says the agreement materially harms banking confidentiality. "The decision paves the way for further harm to the separation between the management of money by a bank and disclosure to Income Tax. Although at the moment, the measure helps the banks and saves them the need to work directly with the IRS, but experience shows that it will later expose all of the public's banking activities to the Israel Tax Authority."
Grossman warns, "This will be the final burial of banking confidentiality on one hand and a signal for the strengthening and prosperity of alternative institutions, which will rush to offer the public alternative instruments."
Published by Globes [online], Israel business news - www.globes-online.com - on March 9, 2014
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