Sources inform ''Globes'' that the Ministry of Finance is in advanced talks with the US Department of the Treasury on an agreement on the transfer of information on bank accounts held by foreign residents. The agreement will reportedly be signed within months.
Under the agreement, banks will provide information about US customers to the Israel Tax Authority, which will send it to the Internal Revenue Service (IRS). At the same time, the IRS will provide the Israel Tax Authority information about Israelis with bank accounts in the US. The sources said that, as part of the collaboration, the Tax Authority has already received that format for providing the information to the IRS.
The Ministry of Finance and the Tax Authority have sought to move forward on this initiative for over a year, and their efforts are apparently working. Sources in Jerusalem say that a pilot program has already begun to test the mechanism.
Negotiations on an agreement began when the Foreign Account Tax Compliance Act (FATCA) came into effect in 2010, requiring other countries' banks to have their American customers sign statements about their accounts and provide the IRS with this information. The US's draconian demands prompted Israel to seek an agreement, under which the Israeli banks would have no contact with the IRS, but would be subject to the Israel Tax Authority. In addition, in the event of a fault, the Tax Authority, not the IRS, will impose penalties. This is good news for the banks, given that the US authorities are known to be aggressive in their penalties.
However, this is only one part of the deal. The agreement will be reciprocal, and the IRS will provide the Israel Tax Authority with information about Israelis with bank accounts in the US, as part of the fight against tax evasion. Banking sources say that such an agreement could have a dramatic effect on Israel's campaign against tax evasion and money laundering.
An agreement will not come into effect immediately. First of all, legislative amendments will be needed, a process that will take a long time. There is a need to adapt computer systems to enable US and Israeli computers to communicate and share data, which will involve heavy investment.
Sources inform ''Globes'' that Israel is already carrying out computer pilots and simulations to test the sharing of information.
The collaboration between Israel and the US is part of the global campaign against tax evasion. The US is leading the fight, including by levying harsh penalties on banks that help Americans evade taxes and through FATCA. At the same time, other countries have taken steps to reduce tax evasion. For example, France has sharply raised penalties for tax evasion.
Sources in the financial system say that OECD member states are seeking to promote an agreement for sharing information on tax evasion by their residents. These talks are only preliminary, and it is unclear whether an agreement will ever be reached.
Published by Globes [online], Israel business news - www.globes-online.com - on February 18, 2014
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