An Agreement with the US Treasury to Implement the FATCA
On July 2, 2014 The Treasury announced that the Israeli and US governments have signed the agreement to improve international tax enforcement and implement the legislative orders of the Foreign Accounts Tax Compliance Act (FATCA). This solidifies the "essence agreement" announced on May 1, 2014.
The agreement settles the information transfer to the IRS, via the Israeli tax authority, which will receive it from the financial bodies in Israel. The information given will include details regarding financial accounts held in Israel by United States citizens, Green Cards holders, or by a legal entity in which Americans have a fundamental holding. In addition, the agreement allows the IRS to report to the Israeli authorities regarding revenue in accounts of Israeli citizens in the US.
According to FATCA, any financial body outside the US must sign an agreement with the US tax authority; thereby committing to check the owners of accounts. The information will be forwarded to the US tax authorities once a year. Furthermore the financial body will commit to transfer information regarding the number and total value of accounts for which owners' refused to cooperate. A financial body which will not abide with the Act's orders will be subject to a sanction of tax withholding at the rate of 30% for payments originating from any American income source. Inability to abide with the FATCA orders by financial bodies in Israel may cause them and the Israeli economy heavy financial damage.
According to the agreement, the first date for the information transfer to the US is September 30, 2015. The first information transfer will include data regarding American account holders and their account balance for the end of the year 2014. The tax authority is expected to sign an agreement with the IRS soon, in order to settle the regulations and technical aspects for the information transfer, including instructions for keeping the information and securing it, as well as instructions to limit use of this information by the US tax. The full agreement will be made public after the signing.
The agreement includes several aspects to alleviate the burden on financial bodies to supply information. For example, financial bodies which pose minimal risk of use for the purpose of tax evasion will be exempt from reporting, such as continuing education funds for employees, providence funds for special purposes (such as, for illness or vacation), or trustees of option plans for employees under the 102 section of the income tax ordinance. Implementing the agreement may bring information to the US tax authorities' attention regarding the existence of financial assets of Israeli residents, who are Americans, which the US tax authorities were not even aware of, and may even cause legal action to be taken in the US against Israeli residents, in accordance to US law.
Twenty eight countries have already signed the FATCA agreement, including Britain, Canada, Denmark, Mexico, Ireland, Norway, Spain, Germany, France, Netherlands, Switzerland, Japan, Italy, and Hungary. The list of countries which have signed the FATCA agreement is on the US Treasury's website.
Appendix 1 to the agreement includes instructions for the financial bodies on how to perform checks to identify the accounts regarding which information must be transferred.
Appendix 2 to the agreement includes the list of bodies and accounts exempt from reporting. The appendix states that bodies managing the pension savings accounts in Israel will not have to report the pension accounts they manage.
The deputy for the supervisor in charge of state incomes, which headed the negotiation team, Frida Israeli, stated that, "The agreement is a milestone in the international cooperation in the field of information transfers between tax authorities. We will act to ratify the agreement in the government and Knesset, and enter it into Israeli law. Furthermore, since the agreement is not yet valid, and at this stage there is no legal duty by the financial bodies to perform identification procedures as described in appendix 1, we will soon forward a request to the US treasury which will propose postponement of checking new accounts during the transition period".
The financial bodies are required to prepare for the transfer of the information, which will be gathered via the Israeli tax authority.
A link to the agreement including appendixes can be found here.
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