Israel and the United States signed recently the FATCA Agreement that aims to improve international enforcement of taxes in relation to bank accounts, and for implementing provisions of the United States Foreign Accounts Tax Compliance Act.
The FATCA Agreement regulates the transfer of information to the United States Internal Revenue Service (IRS) through the Israel Tax Authority which will receive information from Israeli banks and other financial bodies, and vise versa.
See also: New Israeli Bill to implement FATCA
According to the FATCA Agreement, the information that will be transferred by the Israel Tax Authority to the IRS will include various details on bank accounts held by United States citizens and residents, Green Card holders, or legal entities consisting of material American holdings. The FATCA Agreement also enables the IRS to report to the Israel Tax Authority on revenue from bank accounts held by residents of Israel staying in the United States.
The FATCA Agreement provides that the first date for the transfer of information on bank accounts to the United States as per the agreement is Sept. 30, 2015.
The first information transfer to the Israel Tax Authority on bank accounts according to the FATCA Agreement will include data on holders of American accounts as well as the balance in their accounts as of the end of 2014. The Israeli Tax Authority needs to sign an agreement with the IRS in order to regularize procedures and the technical aspects of the information exchange.
Addendum 1 to the FATCA Agreement includes instructions to banks and other financial institutions on how to perform checks of the identity of accounts whose information must be reported (the due diligence process).
Addendum 2 to the FATCA Agreement includes a list of banks and other financial institutions as well as accounts that are exempt from reporting. The Addendum FATCA Agreement in fact states that bodies that manage pensioner’s savings in Israel will not be obliged to report on the pension savings accounts under their management. Additionally, other financial bodies that constitute low risk as vehicles for tax evasion will be exempt from reporting under the FATCA Agreement as will be provident funds for special purposes or trustees of option plans for workers according to Section 102 of the Israeli Income Tax Act.
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