Israeli bank compliance and US foreign tax act

A committee to establish how Israeli institutions can conform to the US foreign tax act will be headed; will force US citizens abroad to pay tax.

American flag waving 260 R (photo credit: Reuters/Lucas Jackson)
American flag waving 260 R
(photo credit: Reuters/Lucas Jackson)
Treasury director-general Doron Cohen established a committee on Thursday to examine how Israeli financial institutions can conform to the US Foreign Account Tax Compliance Act (FATCA), which requires them to begin disclosing details of American account-holders to the Internal Revenue Service starting next year.
The committee will be headed by director of state revenues Frida Israeli.
It was asked to address legal barriers preventing Israeli banks from disclosing customer details and to recommend measures to deal with the high operating costs of compliance. It was also asked to examine the possibility of formulating a bilateral agreement with the US that would make it easier for Israeli financial institutions to comply.
FATCA, passed in 2010, requires all foreign financial institutions (FFIs) to become compliant by June 30, 2013.
It will give the United States more power than ever to force American citizens and green-card holders residing abroad, including an estimated 200,000 to 300,000 in Israel, to become tax-compliant. FFIs that fail to comply will be withheld 30 percent of any payments of US source income, as well as gross proceeds from the sale of securities that generate US source income.
Philip Stein, the president of Israel’s largest US CPA firm Philip L. Stein & Associates, told The Jerusalem Post that FATCA will force virtually every Israeli financial institution to be compliant, as any institution that deals with dollars must have some contact with the US.
FFIs will be required to identify all American customers with accounts holding $50,000 or more, he said.
For account-holders with less than $1 million, FFIs will be permitted to rely on records already in possession to identify whether they are American, but for account-holders with more than $1 million, they will be required to make more serious efforts to find the answer, he explained.
At least one bank has confirmed to Stein that it will begin asking new customers about where they hold citizenship.
Presumably, he said, the bank will reject applicants who refuse to answer the question.