An amendment to the Income Tax Ordinance that was recently
enacted obligates financial institutions to identify the residency
and citizenship of their foreign account holders. The financial
institutions are required to report the information to the Israel
Tax Authority ("ITA"), so that the ITA can then relay
that information to the relevant foreign tax authority.
Consequently, provisions of the Ordinance that, up until now,
had prohibited information exchanges between tax authorities, were
amended accordingly, and provisions were added to the Ordinance
that impose financial sanctions on financial institutions that fail
to transfer the compulsory information, or that transmit partial
information to the ITA (sanctions can reach 250,000 NIS for each
non-transfer or partial transfer of information).
The amendment comes in the wake of FATCA enacted in the United
States in order to prevent US citizens and companies owning
financial assets outside the US from evading their obligations to
file tax reports and pay taxes to the US Internal Revenue Service
Pursuant to FATCA, financial institutions outside the US, such
as banks, are obligated to examine all accounts managed by them or
through affiliates to identify account-holders who are US citizens
and transfer financial information relating to them to the IRS,.
Failure to comply with this requirement exposes them to US
The State of Israel already signed a bilateral agreement with
the United States about two years ago, regarding implementation of
the provisions of FATCA.
According to the FATCA Agreement, the State of Israel is
obligated to inform Israeli financial institutions to examine all
accounts managed by them and identify all US citizens or residents
who directly or indirectly hold financial accounts at their
institutions, and report information about them to the ITA, which,
in turn, must relay this information to the IRS.
Additionally, the State of Israel has joined the OECD
multilateral agreement regarding information exchange – the
Common Reporting Standards agreement (the “CRS”), which
has been signed by more than 90 countries. Pursuant to the CRS, the
State of Israel is obligated to amend relevant Israeli laws and to
begin transmitting information to foreign tax authorities by the
end of 2018.
Originally published on August 28, 2016
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The VATA contains provisions which appear to support both the cash and accrual basis of accounting for VAT.
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