The United States Internal Revenue Service will now be able to access information on bank accounts held by Americans in Israel under an agreement reached between the two countries, Israel’s Finance Ministry said on Thursday.
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The so-called “agreement of substance” means that Israeli authorities will provide the IRS with information as required under the U.S. Foreign Accounts Compliance Act — U.S. legislation aimed at combatting tax evasion by Americans with assets overseas. Israeli financial institutions will turn over information on accounts held by Americans to Israel’s Tax Authority, which in turn will turn the information over to the IRS once a year, the Finance Ministry said.
The Israel Tax Authority will not only report to the IRS on Americans but also on account holders who have permanent residency, or green card, status in the U.S. and businesses in which American citizens have a substantial ownership stake, the ministry said.
“Israel has been a tax haven for many years; we don’t have good reputation, up there between Switzerland and Hong Kong,” Dave Wolf, a partner at Hacohen Wolf who specializes in U.S. tax compliance, told TheMarker. “That is probably one of the reasons Israel was eager to sign — we want to be part of the big boys club, part of the OECD [Organisation for Economic Co-operation and Development].”
Israel 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. The agreement comes as Israel and other developed countries are taking more concerted action to find people using other countries as tax shelters.
“The agreement in substance provides Israel the status of a country with a signed agreement with the United States, “ said Frida Israeli of the Israel Tax Authority, who headed the negotiating team on the accord.
For now, the agreement calls for a one-way transfer of information. But later, the ministry said, the IRS will have to transfer information to the Israel Tax Authority about U.S. bank accounts held by Israelis. Complete details of the tax treaty will be disclosed once it is formally signed, but the agreement has been in effect since April 28.
Although the IRS will be getting the information automatically via the Israel Tax Authority, Israel’s treasury noted that Americans with accounts in Israel that meet certain threshold requirements must continue to report their bank account information directly to the IRS through the so-called FBAR form. Wolf noted that accounts of people holding a U.S. passport, even if they have never visited the U.S., are covered by the information-sharing agreement.
The Finance Ministry warned that Israeli financial institutions that refuse to cooperate will be subject to withholding of 30% of any American proceeds they would otherwise be entitled to, which could mean potentially substantial losses to institutions that fail to comply. FACTA includes provisions keeping the information that is provided secure and limiting how the IRS can use it.