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 people.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.”Section 196 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.The G8 communique 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 openness.The G8 leaders called on all jurisdictions (=countries) to adopt and effectively implement this new single global standard at the earliest opportunity.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 ownership exposed? 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 laundering.”Consequently the G8 endorsed some “core principles” that are said to be consistent with the FATF anti-money laundering standards.The 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 than resolved.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) regime.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 The 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 actors.”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 cases.leon@hcat.co The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.
