Wednesday, March 19, 2014

Israeli Banks Advised to Prepare for FATCA Before Negotiations Finalized (3/19/14)

Although the U.S. and Israel are in negotiations, it appears the endgame is in sight.  See Banks told to prepare for new reporting rules on U.S. clients (Haaretz 3/19/14), here.  Key initial except::
The Bank of Israel Sunday advised Israeli banks to begin gearing up to provide information about their U.S. clients to U.S. tax authorities, as provided in the U.S. Foreign Tax Compliance Act. 
The statement was issued by the central bank in an effort to ensure that Israeli banking institutions will be ready to comply with FATCA when it goes into effect, in July. The purpose of the act is to help U.S. authorities collect any taxes owed by U.S. citizens, wherever they may live, with accounts at banking institutions outside the United States. 
Israeli banks are subject to laws in Israel, and not to U.S. laws such as FATCA. Until now, Israeli banks were obliged to protect their customers’ privacy and were forbidden from providing information on account holders to any parties unless Israeli regulators explicitly stated otherwise. 
The banks had expected Israel’s central bank to push them to comply with the U.S. crackdown, though. Doing otherwise could expose the banks to U.S. sanctions, including limits on their branches within the United States. 
Sunday’s order brought Israel’s banking system in line with many others that have given in to American demands, including Switzerland’s banks, which had been well-known for their privacy. 
As far as is known, the step was taken following advanced negotiations between Israeli government officials and their U.S. counterparts. The bilateral deal would include an Israeli commitment to provide the required information about the American customers of Israeli banks. In return, the United States is expected to commit to provide the Israeli government with comparable data on U.S. banks’ Israeli customers. 
Most Israeli banks have been preparing for two years for the introduction of FATCA in Israel, informing their U.S. customers about the anticipated requirement and its implications. 
It is assumed that any U.S. citizen seeking to evade the reporting requirements has already withdrawn their funds from Israeli banks and turned to other investment channels, such as Israeli real estate, which is not subject to regulation under FATCA. Others have voluntarily disclosed their assets to the U.S. Internal Revenue Service.
Dave Wolf, an Isreali lawyer, advises here that (emphasis supplied by JAT):
This development is quite surprising as usually countries sign the FATCA agreement first before starting the implementation of FATCA rules. 
The negotiations with the USA have been ongoing a very long time and this may be partly the result of the U.S. Department of Justice criminal investigation into the behavior of three Israeli banks in Switzerland: Bank Leumi, Bank Hapoalim and Bank Mizrahi.

1 comment:

  1. ....."The purpose of the act is to help U.S. authorities collect any taxes
    owed by U.S. citizens, wherever they may live, with accounts at banking
    institutions outside the United States...."

    We all know by now that this is only 50% of the truth.

    The IRS is foremost interested in collecting FBAR and other Form penalties regardless of any taxes owed.
    The real message is that the IRS views penalties as a revenue source, and that a cost-benefit analysis is performed around whether or not to assert penalties, and that only penalties that have high dollar amounts attached to them are worth enforcing.


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