Published On: Thu, Aug 28th, 2014

Following US Lead, Israel, Germany Increase Cooperation to Fight Tax Evasion

 

Tax Evasion

Israel and Germany are intensifying their cooperation in combatting tax evasion. Minister of Finance Yair Lapid met last week with his German counterpart, Wolfgang Schauble, and signed a tax protocol between the two countries. The agreement includes the sharing of information by Israel and Germany concerning the assets of Israelis living in Germany and Germans living in Israel.

“This agreement has unprecedented items that were not included in previous agreements with Germany, ” says Adv. Henriette Fuchs, head of the tax department at the Barnea & Co. law firm and Israel’s first member of the Organization for Economic Cooperation and Development Extended Bureau of the Taxation and Fiscal Policy of the Business and Industry Advisory Committee (BIAC). According to Fuchs, the main innovation in the agreement is the undertaking by the Israel Tax Authority to demand from the banks and any other financial institution information about German citizens, and to deliver this information to the German authorities, with the same commitment also being made in the other direction.

“As of now, the countries usually transfer existing information in the databases of government authorities. They are now making a commitment to also obtain information on behalf of another country from financial and other institutions managing those people’s assets, ” Fuchs says. This usually involves a non-automatic legal proceeding. Still, the willingness of each country to make an effort to help the other is no trivial matter.

The agreement is slated to take effect at the beginning of 2015. Fuchs recommends making appropriate preparations, mainly in cooperation with the Tax Authority’s voluntary disclosure program. It is believed that the Tax Authority will publish a new program in the coming weeks, which Fuchs says should be more worthwhile than the current program.

The agreement is part of a tax convention between Israel and Germany aimed at preventing double taxation and encouraging bilateral trade. Israel and Germany signed a tax convention as early as 1962, but following economic changes, it was decided to sign a new agreement suitable for the current state of the markets.

Global trend

The commitment by Israel and Germany to help each other in the war on unreported capital is part of a global trend being led by the US. The US is making an aggressive effort to combat tax evasion, and is requiring global financial institutions to have their customers sign statements that their assets have been legally declared to the tax authorities. The OECD is currently trying to formulate a similar agreement between its members. Meanwhile, specific agreements are being made between individual OECD members, such as the one between Israel and Germany. In this agreement, however, information is transferred at the specific request of the authorities, not automatically. Nevertheless, the trend is towards erosion of banking confidentiality, and customers will find it difficult to conceal assets from the tax authorities, even if the assets are in a different country.

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

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