Swiss banks target Israeli tax evaders

Swiss banks are demanding that account holders show confirmation that capital has been reported to the Israel Tax Authority.

Swiss banks are training their crosshairs on Israeli customers. Legal sources said that in the past two weeks, the large banks in Switzerland have begun sending many queries to their Israeli customers demanding confirmation either that the assets deposited with the banks were reported to the Israeli tax authorities, or that the customers have begun a process of voluntary disclosure to the authorities in Israel.

“After dealing with their US and European customers, the banks in Switzerland have moved on to their Israeli customers. They have decided to verify that all the assets in their accounts are reported and are in compliance with the rules, ” said Adv. Leor Nouman, who heads the Tax group at the S. Horowitz & Co. law firm.

The Israel Tax Authority is currently conducting an investigation against dozens of Israelis suspected of concealing assets through accounts at Swiss bank UBS. “Globes” revealed yesterday that Haifa District Court Judge Moshe Gilad is one of those being investigated. This investigation may also have been the catalyst for a decision by the Swiss banks to make requirements of all their Israeli customers. Last September, the Israel Tax Authority announced a new anonymous voluntary disclosure program giving Israeli citizens an opportunity to legalize their unreported assets. According to Nouman, the banks in Switzerland are aware of the Tax Authority’s new program, and are encouraging their customers to join it.

As far as is known, at this stage the Swiss banks are demanding that their customers present confirmation that the assets in the bank have been reported to the relevant tax authorities. The banks are not yet threatening to freeze the accounts for which such confirmation has not been presented, but such a threat is probably merely a question of time.

“In most cases, the next stage is giving customers a time frame for presenting documents, without which they will be put on a list of problem customers. In the case of US customers, we have also seen accounts blocked, ” Nouman said.

In the past, requiring bank customers to present confirmation that their assets in the bank were reported in their country of residence was not characteristic of the Swiss banking system, where the principle of banking secrecy was considered supreme. In recent years, however, this trend has been reversed, following the decision by US authorities to wage all-out war against tax evasion, and to use the foreign banks in which unreported assets were concealed for this purpose.

As part of that war, the Foreign Account Tax Compliance Act (FATCA) rules were devised. These require foreign banks to have their US customers sign a declaratory document stating that all the assets have been reported to the tax authorities. The war against tax evasion did not stop there, however. Other countries in Europe, especially Germany, the UK, and France, saw how successful the US was, and stepped up their own enforcement. As a result, many banks (including in Israel) demanded such as statement from their customers in Europe as a preemptive measure in order to avoid involvement in an investigation by the European authorities, as some of them had been embroiled with the US authorities.

Now that the accounts of their European customers have been put in order, it appears that the Swiss banks are moving on to deal with their Israeli customers. Nouman predicts that “At the same time that they are dealing with Israelis, the Swiss banks are likely to also demand declarations from their customers in South America and Russia.”

For the Israeli customers, this requirement constitutes a bureaucratic burden at best, and compulsion to join the Tax Authority’s voluntary disclosure plan at worst. At the same time, Nouman points out, there is also a positive aspect for the customer: improvement of their terms at the bank. Nouman says that after the Israeli customers make tax arrangements for the assets in their accounts and present the necessary confirmation, they can switch banks more easily, because without confirmation that their money was reported to the relevant tax authority, an absolute majority of banks will not agree to accept the assets. The possibility of switching banks means that customers can obtain better terms on commissions from a bank than in the current situation, in which they are a “prisoner” of the Swiss bank. According to Nouman, more than a few customers are bettering their terms at the bank in which they have an account, after providing the required asset declaration.

Published by Globes [online], Israel business news – www.globes-online.com