Finance C'ttee approves FATCA compliance bill

IRS tax US

The Knesset bill requires financial entities to disclose information about US citizens in Israel to the IRS.

Following weeks of discussions, the Knesset Finance Committee yesterday approved a bill for implementation of the provisions of the US Foreign Account Tax Compliance Act (FATCA) concerning exchanges of information between the tax authorities in the US and Israel. The US has signed agreements for such implementation with 113 countries. These agreements require financial entities and the tax authorities in the signatory countries to disclose to the US tax authorities information about the bank accounts and financial assets belonging to US citizens residing in those countries.

The new bill requires all financial entities in Israel, headed by the banks, to disclose information about US citizens living in Israel to the Israel Tax Authority, which will then send the information to the US Internal Revenue Service.

Without approval of the bill, the Internal Revenue Service would deduct 30% withholding tax from Israeli financial entities, and impose other drastic sanctions against the Israeli financial system and specific entities. The sanctions in question include exclusion from the Swift international clearance system, severance of contact with international economic and financial entities, etc. Today's approval ensures that Israeli financial entities and citizens can deal with the Israel Tax Authority, instead of directly with the US Internal Revenue Service, The Knesset Finance Committee must now approve the regulations issued for technical implementation of the bill and the provisions binding on financial entities.

The Finance Committee changed several clauses in the bill submitted by the Ministry of Finance. For example, in the discussion, it was decided not to retain a clause enabling the Tax Authority to use information sent to the US through it under the agreement with the US for purposes unrelated to the agreement.

Following prolonged negotiations with the Ministry of Finance, it was decided, among other things, to lighten the financial sanctions imposed on financial institutions failing for technical reasons to meet all the complicated requirement under the law. It was also decided that gamachim (private institutions providing interest-free loans to individuals under Jewish law) would be classified as public benefit companies under the Companies Law, enabling them to continue operating without the FATCA provisions applying to them, because the bill concerns entitles classified as financial institutions. Knesset Finance Committee chairman MK Moshe Gafni (United Torah Judaism) added to the bill an obligation to obtain the Finance Committee's permission for measures in implementing the law, regulations, and other actions.

According to the bill approved yesterday, if the Tax Authority suspects that a financial institution has not done everything required of it to ensure that certain account owners disclose information relevant to the FATCA provisions, or did not conduct all the inquiries required under the bill, it can impose financial sanctions totaling NIS 5,000-50,000, instead of NIS 10,000-100,000 under the original bill submitted by the Ministry of Finance.

Summarizing the debate about the law, Gafni said, "The bill is very questionable… From the beginning, several things in the agreement with the US needed to be changed. There is a difference between the two countries, and not everything suitable for one of them is suitable for the other. For example, in Israel we have the institution of gamachim - an institution of moral and historical importance, which makes it possible to help the economically disadvantaged with interest-free loans on easy terms for people to whom no bank would grant a loan. All of these things should have been included in the agreement when it was signed. I'm glad that we managed to correct the distortions for the benefit of Israelis after the agreement was signed."

The Finance Committee approved the bill unanimously, and sent it to the Knesset plenum for its second and third readings in the next few days. The bill will become effective when the regulations for it are published next week.

Published by Globes [online], Israel business news - www.globes-online.com - on July 12, 2016

© Copyright of Globes Publisher Itonut (1983) Ltd. 2016

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018