The Bank of Israel is not waiting for an Israeli-US agreement on the exchange of tax data. Supervisor of Banks David Zaken today announced that he is ordering banks to prepare to implement the Foreign Account Tax Compliance Act (FATCA). Under this law, passed in 2010, and which comes into effect in July, every financial institution in the world must notify the Internal Revenue Service (IRS) about its US customers, and, if necessary, to deduct tax payments from their accounts.
The banks must apply FATCA by mapping their US customers and having them sign the appropriate forms. The Bank of Israel is ordering the banks to appoint an officer responsible for the matter, establish work procedures, and reporting processes to management. The banks will also examine the need to sign an agreement with the US authorities and to set procedures for handling uncooperative customers – including “the option of refusing to provide banking services to a customer who does not cooperate with the implementation of the provisions.”
Most, if not all, of Israel banks are ready to implement FATCA and have signed their US customers on the forms. As a consequence, the banks have lost quite a few customers, who decided to withdraw their money and close their accounts. “Globes” has estimated that more than $4 billion have been withdrawn from accounts in Israeli banks.
Last week, “Globes” reported that the Ministry of Finance is in advanced talks with the US Department of the Treasury on an agreement for the sharing of information on bank accounts held by foreign residents, and that the economic social cabinet will discuss the agreement soon.
The agreement will supersede the US government’s demand that Israeli banks will report directly to the US authorities. Instead, the banks will send the information about US customers to the Israel Tax Authority, which will send it to the IRS. Despite the advanced stage of the talks, it is unclear whether an agreement will be signed before FATCA comes into effect in July. The Bank of Israel is demanding that the banks prepare to implement FATCA whether or not the agreement is signed. “A financial institution that does not cooperate with the US authorities is liable to various sanctions, including a 30% deduction from payments originating in the US, ” it says.
Published by Globes [online], Israel business news – www.globes-online.com