Under certain circumstances the Foreign Account Tax Compliance Act (Fatca) requires the IRS to reciprocally exchange some information about accounts maintained by residents of foreign jurisdictions in US financial institutions with their home tax authorities.
An IRS statement in 2015, confirmed that it will only engage in reciprocal exchanges with foreign jurisdictions that, among other requirements, meet the IRS’s stringent safeguard, privacy, and technical standards.
Article six of the US agreement with Israel headlined ‘Reciprocity’ states that “the Government of the United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with Israel.
“The Government of the United States is committed to further improve transparency and enhance the exchange relationship with Israel by pursuing the adoption of regulations and advocating and supporting relevant legislation to achieve such equivalent levels of reciprocal automatic information exchange.”
Information exchange
Citing an ITA press release, Israeli newspaper Haaretz reported that the Israeli regulator did not disclose how much information it had shared with the IRS, but said its US counterpart had provided data on more than 35,000 Israeli-held accounts.
“The tax authority will be examining and sorting the data, and comparing it with reports Israelis made to the local tax authorities,” the statement read.
“The process will identify which [bank] clients have been regularly reporting to the authorities about their accounts and which have taken advantage of the tax amnesty.”
The exchange of information between the United States and Israel comes after Israel agreed to comply with Fatca, which requires foreign financial institutions to supply information to the US tax authorities.
Attempt to block
An attempt to block the implementation of Fatca was rejected by Israel’s high court in September 2016, after a non-profit group with links to the US Republican Party claimed it violates the country’s basic law on human dignity and liberty.
Fatca
The aim of Fatca is to prevent money laundering and tax avoidance. Israeli, along with 112 other countries, must pass information on accounts and financial assets owned by American citizens in those countries to the IRS.
Failure to comply with the regulations mean a 30% tax on all transactions the non-compliant foreign financial institution conducts with US banks, in addition to other sanctions.
