Israeli banks to report foreigners' accounts

Moshe Gafni Photo: Shutterstock ASAP Creative

Israel has joined the automatic exchange of information (AEOI) system between tax authorities.

After a one-year delay, Israel is joining the automatic exchange of information (AEOI) system between tax authorities. The Knesset Finance Committee today approved the common reporting standard (CRS) regulations for applying the OECD's tax planning rules. Shortly after the committee members voted in favor of the regulations, committee chairperson MK Moshe Gafni (United Torah Judaism) announced that he had submitted a revision, which will delay bringing the regulations to the Knesset plenum for final approval on their second and third reading. Gafni's unconventional act is aimed at ensuring that the Interest-Free Loan Societies (Gemachim) bill passes its second and third readings in the Knesset plenum.

It was learned today that passage of the Interest-Free Loan Societies bill would require support from over 50 MKs, because it is significant for the budget. As part of an objection, Gafni himself added a clause to the bill unrelated to interest-free loan societies. The Ministry of Finance estimates that this clause, which extends tax benefits for communities in outlying areas, will cost NIS 100 million. "If the Interest-Free Loan Societies bill does not pass, the CRS regulations bill will also not pass," Gafni said immediately after announcing the revision of the regulations.

Approval of the regulations for implementation of the agreement for exchanges of information between tax authorities is designed to avoid Israel being placed on a blacklist of countries that are not taking action against tax planning. OECD secretary-general Angel Gurria repeated this warning in a letter to Minister of Finance Moshe Kahlon last month following the prolonged delay in approving the regulations. The agreement became effective in 2017. When the regulations are approved, the banks will be required to report residents of foreign countries owning bank accounts in Israel to the tax authorities of those countries. The Ministry of Finance today said that the banks would make an initial partial report on owners of banks accounts who declared that they were residents of foreign countries. A full report including owners of undeclared bank accounts suspected of being foreign residents will be provided only starting in September 2020.

The number of bank customers involved is believed to be one million. These customers are likely to be asked by the banks to make various tax declarations and reports. The Israel Tax Authority has an interest in implementing these regulations in order to obtain information from foreign tax authorities about Israeli citizens residing abroad or having overseas bank accounts.

The regulations define individuals' bank accounts as having a "low value" if they have less than $1 million and set conditions for classifying them as accounts of a foreign resident if necessary. Under the regulations, the bank will examine whether it has a documented up-to-date address for the account holder, which could indicate a need for reporting. If the bank does not have such an address, the account will be examined using an electronic scan of any indication about registered residence in another country: a residential address in the foreign country, a foreign telephone number, a standing order to transfer funds to an account in a foreign country, or a power of attorney for an address in a foreign country. It will also be checked whether the bank account includes formal documentation, such as an ID or driver's license number from a foreign country. The visibility of the various indications will also be discussed. In certain cases, a combination of these circumstances will require the classification of an account as belonging to a foreign resident.

Even if significant signs of residence in a foreign country are found, a bank or financial institution will not classify an account as belonging to a resident of a foreign country before allowing that person to object to the classification. The bank will contact the person and notify him or her of what it is planning to do. The person can then contact the bank, examine the circumstances, and present documentation showing that the account does not require reporting.

Enhanced checking procedures are stipulated for accounts with over $1 million. An electronic scan is required. If this scan does not yield all of the required information, a more thorough search of paper documentation will be conducted, a search will be conducted for documentation going back five years, etc.

The regulations also include a list of institutions that do not require identification, including financial institutions such as insurance companies and large interest-free loan societies, which do not require identification because they already report in any case.

Gafni welcomed approval of the regulations before announcing the revision. He said, "Some weeks ago, we completed discussion of the regulations and added various improvements that will help people with the process. We wanted to vote on the regulations before, but there was a dispute about the gemachim. After we approved the Gemachim Law yesterday, we said that we would bring up the regulations, and that is what we are doing."

Published by Globes, Israel business news - en.globes.co.il - on January 1, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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Moshe Gafni Photo: Shutterstock ASAP Creative
Moshe Gafni Photo: Shutterstock ASAP Creative
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