The Israel Tax Authority will notify the US Internal Revenue Service (IRS) about the accounts of Americans in Israel, under an agreement in principle between the Ministry of Finance and the US Department of the Treasury for implementing the provisions of the Foreign Accounts Tax Compliance Act (FATCA). The agreement regulates the transfer of information to the IRS by the Tax Authority, which will receive the information from Israeli financial institutions.
The information that will be transferred will include details about financial accounts in Israel held by American persons (citizens, Green Card holders, and residents, as well as legal entities in which Americans have a substantial holding). The parties also agreed that, in future, the IRS may notify the Tax Authority about income in accounts of Israelis in the US.
Under FATCA's provisions, every financial institution outside the US must sign a special agreement with the IRS to undertake to examine the owners of accounts at the institution. The information is sent to the IRS once a year. The financial institutions will also provide the number of accounts and the amounts in them of owners refuse to cooperate.
A financial institution that does not comply with the provisions will be liable to sanctions and a 30% tax payment on any source of income in the US. Non-compliance by Israeli financial institutions could cost the economy dearly.
The agreement also includes provisions for protecting the information and restricting its use by the IRS. The Ministry of Finance will publish the full agreement after it is signed.
Implementation of the agreement could bring to the IRS's attention information about financial assets of American residents in Israel whom the IRS previously did not know about. The agreement is also liable to result in legal action in the US against Israeli residents, under US law.
On the other hand, the signing of the agreement benefits various parties that are subject to it, including an exemption from notifying various agencies about accounts with a low probability that they are used to evade taxes.
28 countries have already signed a FATCA agreement with the US, including the UK, Canada, Denmark, Mexico, Ireland, Norway, Spain, Germany, France, the Netherlands, Switzerland, Japan, Italy, and Hungary.
Government Revenues Administration Deputy Director Frieda Israeli said, "The agreement, the substance of which grants Israel the status of a country with a signed agreement with the US. The agreements reached with the US Treasury Department will make it easier for financial institutions to provide information about Americans' accounts in Israel. It will also prevent sanctions being imposed on financial institutions which cannot comply with FATCA's provisions, were it not for the agreements reached with the Ministry of Finance."
Financial institutions will have to prepare to transfer the information collected via the Tax Authority.
Published by Globes [online], Israel business news - www.globes-online.com - on May 1, 2014
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