One of the burning issues in the battle the Israel Tax Authority is waging against money laundering is the institutionalization of information sharing on bank accounts with dozens of countries, known as the Common Reporting Standard. The push to exchange such information, spearheaded by the OECD, threatens Israelis with unreported bank accounts abroad.
After implementing the proper legislation, the authority will report to other countries on their citizens' bank accounts, and receive, in exchange, a report on the accounts held by Israelis in foreign banks. The authority will be able to demand explanations from account holders and take steps against them. A similar arrangement with the United States, the Foreign Account Tax Compliance Act, or FATCA, has already gone into effect.
The standard was supposed to take effect next month, and a year later with Switzerland. However, it won’t happen this year because more time is needed to amend legislation and regulations – a process stuck because of a lack of will on the part of the chairman of the Knesset Finance Committee, Moshe Gafni, to bring the issue to the committee.
The fact that information is still not received automatically raises the importance of a ruling that Switzerland made in early August about when its tax authorities would be required to share information with other countries regarding accounts appearing on stolen lists.
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Information on closed accounts wouldn’t be shared under this ruling.
The Swiss court allowed its tax authorities to provide bank account details about two Indian citizens, overriding an argument that the data was based on stolen information.
The case involved information provided by Herve Falciani, the former HSBC systems engineer in Geneva who sold stolen information about customers to French tax authorities. The Swiss courts have encountered several cases regarding countries that sought to use the stolen information.
In this case, India received the information from French authorities and not directly from Falciani.
In its ruling this month, the court stated that as long as countries seeking help to receive information didn’t pay for the stolen data, there is a basis for their request to receive the details.
The Israel Tax Authority has also benefitted from the theft of data on foreign bank customers in recent years, which included Israelis, like the Panama papers published in 2016. The lists included comprehensive information about Israelis who opened companies in Panama and other tax shelters.
The source was the leak from the now-defunct law office of Mossack Fonseca, based in Panama.
The HSBC documents stolen by Falciani were also a very important source. The International Consortium of Investigative Journalists, made up of 140 journalists from 45 countries (including Haaretz) made them public in 2015. The Tax Authority announced in August 2016 that the French had supplied it with a list of 8,000 Swiss bank accounts held by Israelis.
An Israeli resident is legally entitled to own an account abroad, but must report all income derived from it, such as interest, dividends and capital gains. If Israelis appearing on the list don’t admit to a foreign account the Tax Authority may have trouble using that information.
The admissibility of stolen, unofficial evidence is unclear, though the data may be used as a means to obtain actionable information from Swiss authorities.
The Swiss Supreme Court ruled in March 2017 that Swiss tax authorities could hand over information to their French counterparts about UBS clients despite receiving it as a result of a theft.
A former employee of the French UBS branch had leaked a list of some 600 customers, apparently including French citizens with unreported Swiss accounts. They sought more information about these accounts from the Swiss.
A French citizen residing in Switzerland petitioned the court against the request, citing the information had been stolen. The Swiss federal court initially ruled that France had not acted in good faith, but the country’s Supreme Court overruled this, finding no basis for refusing the request.
But a month later, the Supreme Court affirmed a ruling that Swiss authorities could not provide assistance against a French couple if the data was obtained by breaking Swiss laws.
The distinction between the two cases stems from the location of the crime. In the first case, where the court allowed the provision of information, the principal of forbidden fruit would have applied had the crime been perpetrated in Switzerland, but it took place in France. In the second case, however, Swiss laws were broken, so the court blocked the transfer of information.
In this month’s ruling, the distinction between the case involving the Indian citizens and that of the French citizens stems from Indian authorities receiving the information from another country and not directly from Falciani.
Plus, India did not say whether it had received the data legally.
Because the Israel Tax Authority allegedly received its list from French authorities, based on this ruling, it will also be eligible to receive official, detailed data from Swiss authorities.
In a separate case this month, the court refused to force UBS to provide France with information on 40,000 account holders, finding there was no due cause or evidence of tax evasion.
Daniel Paserman, a lawyer and accountant, believes the ruling on the Indian nationals is likely to help tax authorities worldwide, including Israel, obtain relevant information about their citizens’ foreign accounts.
“You can assume that as long as instituting CRS in Israel is delayed, Israeli tax authorities will seek other venues to obtain information about Israeli residents suspected of tax evasion,” he says.
“The ruling gives its efforts a tailwind.”