Grossmunster Cathedral in Zurich 311.
(photo credit: Comstock)
Israel and Switzerland agreed two months ago to adopt a broader exchange of information clause into their existing treaty.
In recent years, there have been substantial changes in the area of exchange of information between tax authorities worldwide, especially the exchange of banking information. Many countries waived their bank secrecy in recent double taxation treaties or tax information exchange agreements.
These changes were made, inter alia, due to the pressure of the G- 20 and the formation of the global forum on Transparency and Exchange of Information for Tax Purposes.
There are three types of exchange of information:
• EOI on request – the Israel Tax Authority approaches the foreign tax authority with a request to receive information on income usually derived by an Israeli resident in the foreign requested country.
• Automatic EOI – the Israel Tax Authority receives CDs containing the
names of a group of Israeli taxpayers deriving passive income (inters,
dividends, royalties, etc.) and active income (employment income, income
from professional services, etc.) abroad.
• Spontaneous EOI – If a foreign tax audit reveals information on an
income derived by an Israeli resident, and a suspicion arises that this
income was not reported to the Israel Tax Authority, then that foreign
tax authority can initiate the disclosure of that information to the
Israel Tax Authority.
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Israel and its treaty partners conduct the exchange of information for
tax purposes according to the exchange of information articles in each
double taxation treaty. Israel has 50 double taxation treaties, but the
wording and scope of each exchange of information article vary from
treaty to treaty.
Last June, the competent authorities of Israel and Switzerland met in
Bern and concluded, inter alia, the amendment of the treaty’s exchange
of information article. It is still unknown when this change becomes
effective, but from past experience, one can assume this will not occur
before January 1, 2013.
The existing exchange of information article has a very limited scope.
It only enables the exchange of information that is at the tax
authorities’ disposal under their respective taxation laws in the normal
course of administration.
As such, this article does not cover banking information and information
that can be obtained only through audit in business places or through
inquiries with third parties.
By contrast, the scope of the new exchange of information article is
very broad. Similarly to the exchange of information article in the OECD
model tax convention, it covers any information that is foreseeably
relevant for carrying out the provisions of the convention.
The new exchange of information article also covers the exchange of bank
information, as it mentions explicitly (similar to article 26(5) of the
OECD model convention) that a Contracting State cannot decline to
supply information solely because the information is held by a bank,
other financial institution, nominee or person acting in an agency or a
fiduciary capacity, or because it relates to ownership interests in a
We see a few consequences from the new exchange of information article.
The first is that once the new article goes into effect, the Israel Tax
Authority may request bank documents regarding accounts that Israeli
residents hold in Switzerland. The second consequence relates to the
automatic exchange of information. In the short run, in view of the
Swiss government’s existing approach (as well as the recent agreement
signed between Switzerland and Germany), we do not expect automatic
exchange of information between the countries. However, in the long run,
as the OECD holds the view that automatic exchange of information is
part of the OECD EOI standards, and in view of the efforts of the global
forum to enhance the compliance with the exchange of information, we
see a chance that the bank information will be delivered from
Switzerland to Israel automatically.
In conclusion, the new article offers a dramatic change in the scope of the exchange of information between the two countries.
Since the date it goes into effect is still unknown, we advise Israeli
residents who have bank accounts in Switzerland with unreported income
to seek professional consultation.
One of the options worth considering is applying for the voluntary disclosure program.The writer is head of the
International Tax Department, Ziv Sharon & Co. Law Office. He
previously managed the exchange of information with foreign tax
authorities in the International Tax Division of the Israel Tax
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