Sources inform ''Globes'' that the Ministry of Finance is working to sign an agreement with the US Department of the Treasury on the transfer of information on the bank accounts of foreign nationals in the two countries. Last week, Israel Tax Authority director general Doron Arbeli met Internal Revenue Service (IRS) acting commissioner Steven Miller as part of this effort. If an agreement is signed, an organization will be established which will be responsible for the transfer of the necessary information to the US, and the IRS will send to Israel details about the bank accounts of Israelis residing in the US.
The Ministry of Finance is trying to help Israeli banks deal with strict US regulations under the Foreign Account Tax Compliance Act (FATCA), which applies to US citizens residing overseas. Under FATCA, banks in other countries, including Israeli banks, are required to provide the IRS with lists of accounts of US citizens, details of the accounts, and declarations that they have paid the required taxes. If there is a problem with a customer, the IRS will impose sanctions against the bank.
FATCA is draconian, and banks around the world have sharply criticized it. One way of dealing with the law's requirements is an agreement by a country to cooperate with the US. Such an agreement will allow local banks to send bank account details to the local government, which will deal with the US authorities.
The Ministry of Finance entered the picture after lobbying of the ministry and Bank of Israel by the banks and by the Association of Banks in Israel. In August, the Ministry of Finance set up a committee to review implementing the regulations in Israel. Committee members came from the Ministry of Finance, the Ministry of Justice, the Bank of Israel, and the Israel Securities Authority.
The Israeli government had three options: the first was not to intervene, and let the banks sign agreements directly with the IRS; the second was to apply the Swiss and Japanese model of a direct agreement between the banks and the US with government intervention if needed; and the third option was based on the agreement between the US and the UK, under which the local government assumes full responsibility for the domestic banks, signs an agreement with them and signs an agreement with the US.
The banks preferred the third option, which would expose the banks only to the Israeli regulator, which they know, and which is considered less aggressive than the US regulator. However, this requires the Israeli banks to disclose customer information to the Israeli authorities.
Changes in banking confidentiality
A US Department of the Treasury document published in November states that the US administration was in talks with Israel's Ministry of Finance to draw up an agreement, under which the US authorities would also provide the Israeli authorities with information about the bank accounts of Israeli citizens residing in the US. The US is in similar talks with Argentina, Hungary, New Zealand, and South Korea. The signing of such an agreement would require the Ministry of Finance to establish a special department, which will require substantial resources.
The agreement will not be symmetrical. The US will be required to transfer less information than the Israelis will have to provide, but even partial information will help the Israeli government fight tax evasion by Israelis in the US.
Ministry of Finance sources say that it is worthwhile to exploit the opportunity to make a substantial change for all bank accounts in Israel to include the transfer of details of the accounts and dramatically escalate the war against tax evasion and money laundering in Israel. This will require regulatory changes concerning banking confidentiality. "This egg has not yet been laid, but all the options are open," said a senior Ministry of Finance official.
This idea will likely face fierce opposition from many parties, including the Ministry of Justice and the banks.
Published by Globes [online], Israel business news - www.globes-online.com - on December 12, 2012
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