Tax Authority presses banks on foreign citizen accounts

Moshe Asher Photo: Eyal Yizhar
Moshe Asher Photo: Eyal Yizhar

Israeli banks are being required to provide information on customers with foreign citizenship by July 2018.

The Israel Tax Authority is determined to push forward exchanges of information about financial accounts with foreign countries. The Israeli banks, however, believe that the 12-month deadline for providing the information to the Tax Authority is too difficult. Sources inform "Globes" that the Tax Authority is meeting the banks' representatives this week to discuss the matter.

The newly passed legislation states that the Tax Authority is to automatically receive information from financial institutions about their customers with foreign citizenship (even if they also have Israeli citizenship). The Tax Authority can send the information to the relevant countries and receive information about Israeli citizens in exchange.

The exchanges of information are aimed at combating unreported capital and tax evasion via foreign countries. These exchanges of information are conducted according to the CRS standard set by the OECD.

Israel announced three years ago that it intended to adopt the CRS standard, and is now implementing the standard. According to the wording of the bill, however, the banks believed that the deadline for transferring the information would be in 2019, while the draft regulation indicates that they will have to transfer the information about their customers by July 2018.

The Tax Authority does not regard this deadline as advancing the timetable for compliance. The Tax Authority plans to transfer the information elsewhere only in 2019, but must also make preparations for transferring the information, and is therefore asking the banks for the information by July 2018. For its part, the Association of Banks on Israel says that the banking system cannot prepare implementation of the regulations before the Knesset has passed the bill.

All financial entities in Israel that manage customers' assets are being required to provide information, especially the banks. This process is a difficult one that requires the identification of all customers with foreign citizenship, from which the relevant customers will be selected.

The proportion of holders of foreign passports with accounts in Israel has risen substantially over the past decade; the banks are ostensibly required to provide information to the Tax Authority about these accounts. The banks, however, are to make a selection through dialogue with the customers, and to transfer information only about customers who are active in both Israel and overseas.

The selection process is viewed as complicated, because customers are in no hurry to cooperate and do not understand its significance, which is liable to obligate the banks to impose sanctions against their customers, including freezing their accounts. The banks already went through this process when the US Foreign Account Tax Compliance Act (FATCA) regulations requiring the transfer of financial information about customers with US citizenship were implemented. The population involved in the current case is much larger, amounting to several hundred thousand people with foreign citizenship.

"The timetables that the Tax Authority cites are very difficult, and are liable to force us into aggressive behavior with customers that do not fulfill the requirements," a banks source warns. "When the FATCA rules were implemented, the state coordinated its measures with representative teams of banks and government agencies. This time, they simply notified us of the expected timetables. This is very large project that is also difficult to execute. They can't just drop it in our laps," the source added.

Sources in Jerusalem, on the other hand, do not understand why the banks are upset, saying, "This is a follow-up to implementation of the FATCA rules. The banks know the rules and the policy. They were also worried before implementation of FATCA, but everything eventually went smoothly."

CRS standard

The CRS standard is a framework agreement for gathering information about financial accounts of foreign residents for the purpose of information exchanges between countries as part of the war against tax evasion and money laundering. The information disclosure is supposed to take place automatically once a year. Among other things, the standard stipulates the process of checking and identifying the accounts and the information transferal process.

The uniformity of the standard is meant to facilitate efficient simultaneous transfers of information between countries. At the same time, adopting the standard is not enough; each country must sign a separate agreement with every country with which it wants to exchange information.

Published by Globes [online], Israel Business News - - on May 8, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Moshe Asher Photo: Eyal Yizhar
Moshe Asher Photo: Eyal Yizhar
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