Swiss banks take tough action on Israeli accounts


Some Swiss banks are already getting rid of problematic Israeli customers with unreported capital.

The effort by the Israel Tax Authority to combat unreported capital held overseas by Israelis, especially in unreported Swiss bank accounts, is beginning to yield results. Last December 31, "Globes" revealed that Swiss banks had begun demanding tax confirmation from their Israeli customers, after Tax Authority director Moshe Asher traveled to Switzerland last October and met with senior Swiss bank officials to discuss the Tax Authority's efforts to combat unreported overseas accounts held by Israelis.

A tax expert who recently visited Switzerland told "Globes" that a number of Swiss banks had said that their representatives had "come away warned" from the meetings with Asher, and had consequently toughened their conditions for Israelis continuing to hold accounts. They added that some of the banks, such as HSBC, had even gotten rid of Israeli customers who had not reported their accounts to the authorities in Israel.

The wording of the forms sent by two other banks, UBS and Credit Suisse, to their Israeli customers indicate that the account owners and their tax advisers were liable to have a problem, because the forms are not adapted to the nature of the voluntary disclosure procedure in Israel, in which it is possible to declare unreported assets and avoid criminal proceedings.

Withdrawal from voluntary disclosure

Israeli customers of UBS-Switzerland recently received a form for filling out by a tax advisor. The form asks the advisor to declare before the bank to the tax authorities in Israel the status of reporting the customer's account to the authorities in Israel, and payment of the tax on the money in the account.

The tax advisor must choose one of two possibilities: making a declaration for the tax years listed on the form that the customer reported the account and paid his tax liability under Israeli law for residents, or declaring that he has no indication that the customer reported the account and paid his tax liability for it.

"It is likely that no tax advisor will really choose to make a declaration of the second possibility," says Adv. Yoad Frenkel, former head of the Tax Authority unit for international exchanges of information, and currently Ziv Sharon & Co. international tax manager. "Selecting this possibility will probably lead to the closure of the customer's account, in which case the customer will prefer to voluntarily close the account without damaging himself."

Frenkel adds that the difficulty that the wording of the Swiss bank's form is liable to pose a problem for the Tax Authority's anonymous track for voluntary disclosure. Under this track, the customer can submit a request without exposing his identity to the Tax Authority, and according to the assessment made for him by the Tax Authority, can choose either to reveal his name and pay the assessment, or to withdraw from the voluntary disclosure proceeding. "What happens in a scenario in which the taxpayer withdraws from the voluntary disclosure proceeding due to the assessment that he received from the Tax Authority, after his tax advisor has already declared to the Swiss bank, according to the first option, that the customer-taxpayer is fulfilling the conditions under Israel law? Does the tax advisor have to send another letter to the Swiss bank revising his answer immediately after the customer withdraws from the anonymous proceeding?"

"The banks expect the tax advisor to declare the change, but the tax advisor is liable to be put in an unpleasant situation vis-a-vis the customer," Frenkel explains.

An inaccurate report

The Credit Suisse form gives a tax advisor three options. The first concerns the special population of new immigrants and returning residents - a declaration that the taxpayer is exempt from tax and from disclosure. The second is a declaration that the taxpayer is reporting the account and meeting his legal obligations for disclosure and payment. The third is a declaration that the customer filed the documents at the tax authorities for beginning the voluntary disclosure proceedings and payment of the tax liability.

According to Frenkel, "The difficult is that in the framework of the third possibility, the tax advisor is being asked to declare that the submitting of the voluntary disclosure request is irreversible. The problem that results is that the anonymous track for voluntary disclosure in Israel is a track in which the taxpayer can choose to withdraw from it, and the tax advisor's declaration is therefore liable to inaccurate. Furthermore, if the customer withdraws from an anonymous voluntary disclosure proceeding, the tax advisor again faces the same problem created by the UBS form, because his report becomes inaccurate." Frenkel predicts that sending the forms by the Swiss banks to their Israeli customers will increase the taxpayers' motivation for putting in order their tax liability in respect of their accounts in Switzerland in the framework of a voluntary disclosure proceeding.

Frenkel adds, "The possibility of closing an account as the result of failure to report is a more concrete threat than newspaper reports on affairs like that at UBS" in which dozens of Israelis are suspected of tax violations concerning their accounts in Switzerland. Why have the Swiss banks changed their attitude towards foreign customers?

A change in policy following the "American trauma"

Evidence has recently accumulated that Swiss banks have already gotten rid of Israeli customers, due to concern that their accounts had not been reported to the authorities in Israel.

This is a momentous step, especially in view of the fact that in contrast to the US Internal Revenue Service (IRS), the Israel Tax Authority currently has no means of forcing the Swiss banks to transfer information or apply any sanctions whatever to them. In that case, why are the Swiss banks hurrying to get rid of customers, and to demand that other customers submit confirmations from their tax advisors? The answer to this question probably lies in the "American trauma" experienced by some of the Swiss banks. Just as Bank Leumi (TASE: LUMI) paid over NIS 1.5 billion to the US authorities, following its admission that it had helped its US customers evade paying tax to authorities in the US, the authorities in the US have applied sanctions amounting to hundreds of millions of dollars in similar circumstances to UBS and Credit Suisse.

"I assume that these banks are afraid of a change in the rules of the game for Israel also, as happened in the case of the US. That probably explains the caution with which they are acting," Frenkel comments. His explanation is consistent with the reports that Swiss banks "came away warned" from the meeting with Asher. A Tax Authority source confirmed today to "Globes" that it was possible that the change in the Swiss banks' attitude resulted from the messages given to their representatives in their meetings last October.

Published by Globes [online], Israel business news - - on January 20, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018