The Israeli government is looking into the possibility of signing up to
multilateral information exchange agreements, according to Israeli tax officials
who spoke at the Tel Aviv conference of the Society of Trust & Estate
Practitioners last week.
When can they ask about you?
When can a foreign
tax authority make inquiries about you if you live in Israel? Until now, this
was only possible under an information exchange clause in a bilateral tax treaty
between Israel and the other country concerned. So if the Australian Tax Office
wants to know about an Israeli resident, they can’t because there is no tax
treaty between Australia and Israel. Moreover, even if the other country has a
tax treaty with Israel, OECD commentary says that Israel need not respond to a
general “fishing expedition” inquiry, only specific inquiries about named
All this is gradually changing. Countries like Switzerland are
less able to preserve confidentiality. And multinational agreements are starting
to take off.
Israel is a member of the OECD but this does not facilitate
information exchange about taxpayers, only about tax and economic administrative
techniques in principle.
Before Israel can exchange information about
taxpayers to a multilateral forum, a legislative amendment would need to be
proposed and enacted by the Knesset. Israeli tax officials indicated that such
an amendment to Section 196 of the Income Tax Ordinance is being drafted.
Currently, this section allows the finance minister to implement bilateral tax
treaties with another country whenever this appears “useful.”
would need to be amended to allow accession to multilateral tax treaties as
well. This may now be on the horizon, but it remains to be seen when.
Information exchange was uppermost in the minds of the G8 world
leaders who met on Lough Erne, Northern Ireland last week and they issued a
lengthy communique on the subject. It makes reference to research on information
exchange by the OECD. Below are some extracts.
The G8 leaders proclaimed
that they are committed to establish the automatic exchange of information
between tax authorities as the new global standard, and will work with the OECD
to rapidly develop a multilateral model which will make it easier for
governments to find and punish tax evaders.
Automatic exchange of
information is the equivalent of supplying fish (or information) before it is
requested. So much for “no fishing expeditions.”
The G8 cited “recent
developments in tax transparency” as setting a new standard of
The G8 leaders called on all jurisdictions (=countries) to
adopt and effectively implement this new single global standard at the earliest
They also asked the OECD to work to ensure that the relevant
systems and processes are as accessible as possible to help enable all countries
in implementing this new standard. The G8 leaders also called on all
jurisdictions to join the Global Forum on Transparency and Exchange of
Information for Tax Purposes and the Multilateral Convention.Beneficial
The G8 leaders went on to explain other revealing things: “A
lack of knowledge about who ultimately controls, owns and profits from companies
and legal arrangements, including trusts, not only assists those who seek to
evade tax, but also those who seek to launder the proceeds of crime, often
across borders. Shell companies can be misused to facilitate illicit financial
flows stemming from corruption, tax evasion and money
Consequently the G8 endorsed some “core principles” that are
said to be consistent with the FATF anti-money laundering standards.
G8 recommended, among other things, that companies should be required to obtain
and hold their beneficial ownership and basic information, and ensure that
documentation of this information is accurate; there should be central
registries of company beneficial ownership and basic information at national or
state level which are publicly accessible; trustees of express trusts should
know the beneficial ownership of the trust, including information on
beneficiaries and settlors – this information should be accessible by law
enforcement, tax administrations and other relevant authorities Making it happen
The OECD published a report ahead of the G8 Summit entitled “A Step Change in
Tax Transparency.” According to the OECD, Vast amounts of money are kept
offshore and go untaxed to the extent that taxpayers fail to comply with tax
obligations in their home jurisdictions. Offshore tax evasion is a global issue
requiring global solutions – otherwise the issue is simply relocated, rather
With more and more jurisdictions joining the Convention on
Mutual Administrative Assistance in Tax Matters, the OECD claims there is a
legal basis for comprehensive automatic exchange.
But to make it all
happen, the OECD recommends using a standardized automatic exchange model along
the lines of the Intergovernmental Agreement (IGA) Model 1 between the United
States and various other countries. Such IGA’s are currently used to enable the
US to enforce its FATCA (Foreign Account Tax Compliance Act)
Commencing 2012, FATCA will require foreign financial
institutions (FFIs) to report to the IRS information about financial accounts
held by US taxpayers, or by foreign entities in which US taxpayers hold a
substantial ownership interest.
The Model 1 IGA provides for reporting by
financial institutions to their local tax authorities, which then exchange the
information on an automatic basis with the tax authorities in the other country.
Israel is reportedly negotiating a Model 1 IGA with the US.Reactions
UK and US, not surprisingly, issued statements supporting the G8 communique
which they helped issue.
The White House said “These principles by G-8
members are crucial to preventing the misuse of companies by illicit
There were other reactions too.
For example, US Senator
Carl Levin, chairman of the Senate Permanent Subcommittee announced: “I said
before the summit that the G8 nations were poised to strike a hammer blow
against offshore corporate tax avoidance. The G8 commitments made today, if
carried out, can bring that hammer down.”
European Commission President
José Manuel Barroso and European Council President Herman Van Rompuy said:
“Overall, we are pleased that our ambitions for this summit have been broadly
achieved.”To sum up
You can run, but you can’t always hide your
cash….As always, consult experienced tax advisors in each country at an
early stage in specific firstname.lastname@example.org
The writer is a certified
public accountant and tax specialist at Harris Consulting & Tax Ltd.