Israeli tax authorities moved closer to the day they begin officially sharing information with their U.S. counterparts after the Knesset Finance Committee approved legislation to enforce the U.S. Foreign Account Tax Compliance Act, or FACTA.
Israel is one of about 100 countries that have signed FACTA agreements with the U.S., which aims to crack down on tax evasion by Americans holding their money outside the United States.
Under the terms of the law, Israeli banks and financial institutions will have to provide information on accounts, including those held by American citizens and Green Card holders, to the Israel Tax Authority, which in turn will transfer it to the U.S. Internal Revenue Service.
The law will be reviewed by the finance committee once its technical terms have been completed, after which it will go to the full Knesset for the second and third votes it needs to become law.
The law includes penalties for account holders that don’t cooperate, for example by imposing tax deducted at source on money deposited into accounts. Banks that don’t cooperate are also subject to sanctions, including a 30% reduction in payments due them originating in the U.S.
In fact, Israeli banks have already begun enforcing FACTA terms. In April, foreigners with accounts at Bank Leumi received letters telling them they had to keep at least $50,000 on deposit. The letter gave account holders 30 days from receipt to ensure they have cash or cash equivalents in their accounts or close the account.
The $50,000 figure is the minimum banks and account holders must have that requires reporting to American tax authorities under FACTA. Leumi, which paid a $400 million penalty to U.S. and New York State authorities to settle charges it helped clients evade taxes, is determined not to have that happen again by refusing accounts holding less than the reporting requirement’s minimum.
Under the law approved yesterday, banks that the Tax Authority suspects haven’t cooperated with authorities in supplying information, or haven’t examined account holders sufficiently, will be liable for penalties of between 5,000 and 50,000 shekels ($1,290-$12,900) for each violation. That is half the level the original legislation set.
Significantly, for the Israeli and American ultra-Orthodox community, gemachim are designated “public service institutions” under the new law and exempt from the FACTA reporting requirements. A gemach, whose named is based on the Hebrew acronym “acts of kindness,” is a free-loan fund widely used in the Haredi world to lend and transfer money, often across borders and often without paying taxes.