Dr. Avi Nov, Adv.
The Israeli parliament approved Legislation on Bank Information exchange, which was initially published as part of the fiscal sections of the proposed Law on the Economic Arrangements accompanying the 2015-2016 Budget. The Legislation on Bank Information exchange expands the right of the Israeli Tax Authority to exchange information internationally. The Legislation on Bank Information exchange will allow Israel to meet, among others, its obligations under the Israel - United States FATCA Model 1A Agreement that was signed on June 30, 2014, and the Standard for Automatic Exchange of Financial Information of the OECD, known as the CRS or the Common Reporting Standard.
The FATCA agreement orders that Israeli banks should start reporting details of US persons that hold account for 2014 onwards to the Israel Tax Authority, which will pass on this information to the US Internal Revenue Service by September 2015. The CRS has the same idea of reporting worldwide the details of bank account holders.
The Legislation on Bank Information exchange is needed not only to enable the Israeli government to ratify Israel’s FATCA agreement with the US but also the Standard for Automatic Exchange of Financial Information of the OECD.
See also: Israeli Tax Authority Hunts Undeclared Income
Implementation by Israeli Banks
Even though the Israeli banks started recently to apply the US-Israel FATCA obligations as well as the CRS, pursuant to Bank of Israel orders, this does not yet have the force of law. It is merely a practice undertaken by Israeli banks.
According to recent legislation the Israeli government will be able to sign international information sharing agreements such as the Standard for Automatic Exchange of Financial Information of the OECD. It is envisaged that Israel will soon sign up the OECD CRS. Israel has already committed to implementing the CRS by the end of 2018.
Conditions for Submitting Information
According to the new law, there are various conditions for submitting bank related information, mainly:
1 - The information is required for enforcing the tax laws of the other country, applying means not prohibited by the Israel Tax Authority.
2 - The treaty must require the other country to maintain confidentiality.
3 - The information cannot be transferred in certain scenarios: if the security of the State of Israel, or the peace or security of its people may be affected; if an investigation in progress; or if the other country does not reciprocate without reasonable cause.
The law orders that if an Israeli bank fails to carry out customer identification procedures, a fine of NIS 10,000 per month may be imposed up to a maximum of NIS 600,000 per year per bank.
Dr. Avi Nov Law Offices, Israeli & international tax law
*This article is intended for informative purposes only and is in no way to be construed as tax advice or a legal opinion