U.S. and Israel Agree to Share Tax Information

The pact requires Israel to transfer information about American account holders by September 30, 2015, but it has yet to be approved by the Knesset.

Moti Bassok
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The United States wants you to pay your taxes.Credit: AP
Moti Bassok

Israel and the United States signed a bilateral agreement on Wednesday to share information regarding offshore accounts that Americans have in Israel and that Israelis have in the United States.

“The agreement marks a milestone in international cooperation in exchanging information between tax authorities,” said Frida Israeli, the Finance Ministry official who headed the Israeli negotiating team that reached the agreement.

The first phase requires Israel to transfer information about American account holders, including the balances in the accounts as of the end of this year, to U.S. authorities by September 30, 2015. But because the pact still requires ratification by the Knesset, Israel is not yet enforcing it.

“For now, there’s no legal obligation for financial institutions to identify account holders ... We will soon be sending a request to the U.S. Treasury Department to delay examining new accounts during the transition period,” she said.

Under the agreement, the Israel Tax Authority will be responsible for transferring the financial account information to the U.S. Internal Revenue Service and will provide a framework for the IRS to report on accounts held by Israelis in the United States.

The agreement is related to U.S. Foreign Accounts Tax Compliance Act, popularly known as FACTA, which is designed to combat tax evasion by Americans and American companies overseas by requiring financial institutions to disclose the assets of their U.S. customers. As a result of the law, Washington has been entering into bilateral agreements with governments around the world regulating the transfer of the information.

The agreement comes as Israel and other developed countries are taking more concerted action to find people using other countries as tax shelters. Israel, which is trying to shake off its reputation as a tax haven for foreigners, joins a list of 28 countries that have signed tax treaties with the U.S. in connection with FACTA, including Britain, Canada, Ireland, Germany, France, the Netherlands, Switzerland and Italy.

In addition to the transfer of information by banks and government authorities, American law requires Americans with certain kinds of foreign assets to submit their own individual annual declarations regarding certain foreign bank and other financial accounts, the so-called FBAR filing. This year’s filing deadline was June 30.

The U.S.-Israel agreement exempts financial institutions in Israel from disclosing pension savings accounts held by Americans and also excludes some other financial institutions with accounts considered at low risk of being used to evade taxes, including the continuing education funds (“kranot hishtalmut”) of salaried employees and provident funds designated for specific purposes, such as illness or vacation.

An additional agreement on the technical aspects of the exchange of information between the two countries is expected to be reached soon.

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