Israel and the US moving ahead on banking information exchange agreement

Rachel Berger, Director of Employment at Nefesh B'Nefesh, has given her permission to repost the following article that she wrote on LinkedIn. Israeli business newspaper, Globes, has recently reported that the Ministry of Finance is in late-stage talks with the US Department of the Treasury on a reciprocal agreement to transfer information concerning foreign resident bank accounts. Banking sources say that the agreement could have a dramatic effect on international tax evasion and money laundering. The agreement, which will reportedly be signed within months, is progressing quickly which is indicative of the importance placed on this matter by both governments. β€œUnder the agreement, Israeli banks will provide information about US customers to the Israel Tax Authority, which in turn, will send it to the Internal Revenue Service (IRS). At the same time, the IRS will provide the Israel Tax Authority information about Israelis with bank accounts in the US,” reports Globes. Sources in Jerusalem say that a pilot program has already begun to test the mechanism. The need for an agreement originated when the US Foreign Account Tax Compliance Act (FATCA) came into effect in 2010. FATCA requires other countries' banks to have their American customers sign statements about their accounts and provide the IRS with this information. Unlike other developed countries, the US levies income taxes on its citizens, regardless of their residency, and therefore Americans living abroad must pay U.S. taxes on foreign income. Under U.S. tax law, U.S. persons are required to report and pay taxes on income from all sources. Israel decided to seek an agreement with the US, under which the Israeli banks would have no contact with the IRS, but would be subject to the Israel Tax Authority. In addition, in the event of a fault, the Tax Authority, not the IRS, will impose penalties. This is good news for the banks, given that the US authorities are known to be aggressive in their penalties. Other countries are also beginning to take steps to reduce tax evasion. OECD member states are now seeking to promote an agreement for sharing information on tax evasion by their residents. These talks are only preliminary, and it is unclear whether an agreement will ever be reached. Chaim Wigoda is the Managing Director of HCC International Services Ltd. – an Israeli company that specializes in tax and financial planning for olim. He can be reached at hcc31@hallmarkcc.com Telephone Israel: 972-54-309-1867 US: 917-965-5706 UK: 020 3734 1209 Canada: 416-512-9707