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Exchange of banking information in Israel - Now automatic

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Exchange of banking information in Israel - how does it work?

Exchange of banking information in Israel: Israel joins the list of countries practicing automatic exchange of banking information.

Information on bank accounts and other financial products will be exchanged automatically with the tax authorities in the taxpayer's country of residence. This will be retroactive to 2017.

  • Who is affected by this new reform?
  • What information will be transmitted?
  • How will France handle this new flow of information?
  • Is there any reason to worry about the tax authorities in Israel?
  • What are the existing countermeasures?

Follow the guide.

Non-tax residents with accounts in Israel are directly concerned.

A practical summary of the exchange of banking information in Israel.

Non-resident Israelis with bank accounts in Israel have recently been contacted by their respective banks.

Banks in Israel send notifications to these Israeli non-residents with the following information:

  • According to their information, the taxpayer is not an Israeli tax resident.
  • The taxpayer is a tax resident of country: XXX. (Example: French tax resident).
  • According to the declaration submitted by the taxpayer when opening the account, his tax residence number in his country of residence (TIN Number) is : XXX.
  • If the taxpayer does not send any information to the contrary to his bank, the latter will be obliged to automatically send the account's financial data to the tax authorities in Israel.
  • The Israeli tax authorities will automatically exchange the financial data provided with the tax authorities of the taxpayer's country of tax residence.
  • The exchange of banking information in Israel will take immediate effect from : XXX. (Example: 23/06/2019).
  • The information exchanged with the tax authorities will be transmitted retroactively from the year 2017.

The regulations stipulate that an Israeli financial institution that has designated an account holder as a "resident" of a "reporting foreign country" must send a notification to the account holder concerning the transfer of information to the tax authorities. Indicating that the information is to be transferred to that country by the tax authorities.

The account holder may submit a written objection to the financial institution within 83 days of the notice being sent.

Exchange of banking information in Israel

What are the details of this agreement - The "CRS" Agreement

Automatic exchange of information (AEOI) is a norm defined by OECD member countries sign agreements to exchange information automatically (rather than on request, as was previously the case) from bank accounts held by individuals - physical or moral - resident in any signatory state.

The AEOI enables the French tax authorities to know which offshore or onshore bank accounts you hold - directly or indirectly - in any signatory country. And if an account has not already been declared to the tax authorities, this will trigger tax audits and fines.

This "CRS" (Common Reporting Standard) agreement, which has been signed by over 100 countries, including the State of Israel and countries considered to be tax havens, imposes and governs the exchange of banking information in Israel.

The list of countries that have signed this agreement is given at the end of this article.

The exchange of banking information in Israel will be automatic, even without a prior request from the taxpayer's country of residence.ALSO READ: Tax inspections in Israel

How does it work in practice?

To make this possible, a common reporting standard has been set up, describing how information is to be shared so that each state can simply manage the flow of information. This is a major improvement on the previous system, where information could be communicated in different formats, which was very time-consuming for tax authorities.

The MCAA (Multilateral Convention on Mutual Administrative Assistance in Tax Matters) defines which authority must collect, send and receive the information to be shared.

In practical terms : a country signs the Common Declaration Standard (or CRS in English :  Common Reporting Standard), which defines the information to be shared, and the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MCAA: Mutual Competent Authority Agreement), which defines the authorities responsible for processing information. Ultimately, this means automatic exchange of information (AEOI).

Exchange of banking information in Israel.

What information is shared? And who is concerned?

If you have a bank account in an AEOI jurisdiction (an AEOI signatory state), the jurisdiction concerned will automatically report your bank account to the other jurisdiction in which you are resident.

The standard requires financial institutions (banks, custodians, life insurance companies, etc.) located in signatory countries to :

  • Collect Identify the owners and beneficiaries of bank accounts held by tax residents of countries with which an exchange agreement has been signed:
    • surname, first name, passport number and contact details,
    • account number,
    • account balances,
    • interest income,
    • gross proceeds from sales of securities,
    • ...
  • Report Financial institutions must transmit this information to their tax authorities on an annual basis.
  • Exchange The tax authorities must exchange banking information in Israel with the other signatory jurisdiction.

The "beneficiary" jurisdiction of the exchange is, in principle, that of the country of residence of the account beneficiary.

But in case of doubt, or overzealousness, banks can trade with several jurisdictions.

For example, if you have a French passport but a residence in Israel, the bank may decide that your residence is not "real" and trade with Israel as well as France.

All individuals are concerned: no threshold is applicable.

How do banks in Israel collect information?

Financial institutions must - since January 1, 2016 - classify all new customers, i.e. identify accounts that must be subject to an exchange of information to a third country.

This classification is essentially based on self-declarations completed by individuals and companies, indicating the country or countries in which they are domiciled for tax purposes and the associated tax identification numbers.

The accuracy of the self-declaration will be verified on the basis of the information collected when the account was opened.

Attention Unlike FATCA, where the IRS provides self-certification forms (W9 / W8), there are no provisions for CRS (Common Reporting Standard).

The bank can therefore choose the form providing the most complete information.

Key dates:

Since 2009, the OECD, the EU and the Global Forum on Transparency and Exchange of Information for Tax Purposes have been working to improve transparency and exchange of information on request.

On May 22, 2013, the European Council unanimously decided to develop automatic exchange at EU and global level with a view to improving international tax discipline and tax transparency.

In February 2014, the Finance Ministers and Central Bank Governors of the G20 countries approved the Common Reporting Standard for the automatic exchange of tax information.

In March 2016, 97 countries (including Israel) committed to rapidly implementing (in 2017 or 2018) the common reporting standard and transcribing it into domestic law.

What solutions are available?

Of course, each case is unique, and the consequences must be carefully analyzed.

It is strongly recommended that you seek specialist advice before sending any information to the bank.

Is it still possible to regularize undeclared accounts in Israel?

It should be noted that the anonymous disclosure process ended on December 31, 2018.

However, it is still possible to open a "classic" or "reduced" voluntary disclosure process before December 31, 2019 to declare and pay tax accordingly. Thus avoiding the risk of criminal prosecution in Israel for money or assets hidden in Israel or abroad. (Notably real estate income from assets located on Israeli territory).

On February 6, 2009, the Israeli tax authorities published the list of participating countries and the list of reporting countries to which Israel will transmit information under the agreement.

The publication includes three lists:

  • A list of 96 countries participating in the exchange of information, which have undertaken under the agreement to transfer information to the State of Israel and vice versa (hereinafter referred to as "List A").
  • A list of 53 reporting countries to which Israel will transmit information from July 2019 for the 2017 tax year, including France, Germany and Canada (hereinafter: "List B").
  • The list of 70 reporting countries to which Israel will transmit information from September 2019 for the 2018 tax year, including Switzerland and Austria (hereinafter: "List C").

In a nutshell:

The exchange of banking information in Israel is an issue burningVirtually all dual nationals are affected by this reform. Have you received a letter from your bank in Israel? We strongly recommend that you contact our firm to discuss your personal situation.

Your questions - our advice

  • How can I obtain an Israeli tax residence certificate?
  • What are the "pitfalls" to avoid with your bank?
  • What happens if income on bank accounts has been declared to only one tax authority?
  • How will the Israeli tax authorities deal with undeclared property income?
  • Is it enough to make Aliyah to "bypass" Israel's automatic exchange of banking information?
  • What are the risks involved?

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English speaking accountants in Israel
Address: Kanfei Nesharim 68. Merkaz Oranim
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Fax: 02 631 9005
Email: office@cpa-dray.com