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How does the tax authority obtain information about foreign bank accounts?

איך רשות המיסים מקבלת מידע על חשבונות בנק בחו"ל?

How does the tax authority obtain information about foreign bank accounts?

The tax authority has various mechanisms for discovering and locating bank accounts in different countries around the world. Among other things, this includes tax treaties to prevent double taxation with over 50 different countries worldwide. As part of the double taxation treaty, some countries have also signed information exchange agreements regarding the incomes and finances of Israelis within their borders.

Another mechanism that assists the tax authority in discovering unreported bank accounts is the Foreign Account Tax Compliance Act (FATCA). This law requires every non-American financial institution to identify accounts owned by American citizens and report them to the United States tax authorities. In 2014, Israel signed the FATCA agreement with the United States. This agreement allows, among other things, the Israeli tax authorities to receive information about Israeli residents managing financial accounts in the United States.

Following the American FATCA law, European countries that are members of the OECD set their own uniform standard, the CRS standard. The CRS standard is an agreement for implementing automatic information exchanges between member countries of the organization and even those that are not members of the OECD concerning the financial accounts of foreign residents. The agreement and its regulations were developed by the OECD for the purpose of tax enforcement.

Despite all the mechanisms mentioned above, it was only recently that the tax authority discovered many bank accounts in various countries around the world belonging to Israeli residents who had never reported their existence.

Currently, the tax authority is opening files for Israeli residents and even proactively approaching those Israelis found to own unreported bank accounts abroad, demanding tax reports and thus aiming for “cooperation.” The purpose of the demand is to reveal to the tax authority all the incomes that have been hidden so far in accounts across the world to regulate the tax liability on the civil level. It is important to note that in some cases, the income tax even summoned the owners of unreported foreign accounts for criminal investigations.

The information reached the tax authority from about 100 countries worldwide. The main countries where unreported bank accounts of Israelis were found are the United States, with 19% of the accounts (out of all the accounts discovered worldwide) mainly in major banks in the United States such as Morgan Stanley, Bank Of America, JPMorgan Chase, and more.

In Switzerland, the rate of accounts stands at 10.5%, and in other countries like the UK, the rate is 9.6%, France, and Romania have lower rates.

What has actually changed recently?

After all, this is information that the tax authority has had for a long time.

What is the factor that has made all the information received by the tax authority, according to the information exchange agreements it has with countries around the world, lead to different enforcement steps being taken these days? The tax authority has so far received a lot of information about its citizens with foreign accounts as mentioned above but still could not directly reach the account owners due to difficulty in cross-referencing data like foreign passport numbers, different first names in the foreign country, and other challenges. To solve the problem, the tax authority invested significant resources in developing computerized means that allow it to cross-reference the information received from foreign countries and thus reach the owners of unreported accounts, tax evaders. The authority recruited programmers, BI experts, big data experts, and other specialists, thus managing to extract relevant and significant information from mountains of data.

If you are Israeli residents with a bank account or accounts abroad and have never reported them to the tax authority, it is important to know that it is always better to approach the tax authority on your initiative before the tax authority comes to you. When approaching the tax authority with the aim of regulating tax liabilities, our office acts to minimize the existing exposures due to non-reporting and to reach a fair and favorable arrangement with the authority, which includes reducing or canceling the criminal exposure.

An article published in Globes on 22.11.2022 provides further information on the subject, stating that the authority intends to continue to identify individuals, companies, and trusts in the near future that are not meeting their reporting obligations set by law, and to take appropriate enforcement actions.

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