חוק לתיקון פקודת מס הכנסה (מס' 227), התשע"ו-2016Law to Amend the Income Tax Ordinance (No. 227), 2016 · automatic translation · suggest a correction

Official summary of the law (Knesset)

Amendment No. 227 to the Income Tax Ordinance, 2016 (hereinafter - the Amendment), was passed in second and third reading on 12 July 2016. The Amendment is the practical implementation of the agreement signed between the Government of Israel and the Government of the United States, also known as the FATCA agreement, under which the State of Israel undertook to instruct Israeli financial institutions subject to reporting obligations to review accounts held with them and transfer to the Tax Authority information about accounts of clients' clients held directly or indirectly by US citizens and residents, and also undertook that the Tax Authority would transfer such information to the competent authorities in the United States, and in return would receive similar information from them about Israeli citizens. The provisions of the Amendment shall also apply with respect to an implementation agreement that is an agreement for the implementation of information exchange under an international agreement based on the OECD's procedure for automatic exchange of information on financial accounts. In light of the American taxation system, the Amendment's provisions shall apply to anyone who is a US citizen or US resident, while anyone who is a citizen of another foreign country that is a party to the implementation agreement shall be subject to the Amendment's provisions according to the residency test. Under the Amendment, an Israeli financial institution that is a depository institution, custodial institution, investment entity, or insurance company, which has not been excluded by the Minister of Finance, shall require an account holder or a person seeking to become a holder of a financial account (an account held at a financial institution, including a deposit account, a custodial account, an account in an investment entity with respect to an equity or debt interest in that investment entity that is not regularly traded, or similar rights in other institutions - provided this does not constitute prohibited tax planning), to provide it with the information needed to determine the person's identity and country of tax residence or citizenship, and if the account holder is an entity - also information needed to classify it and determine the identity of its controlling person and that person's country of tax residence or citizenship; the financial institution shall transfer the information about the account holder and the controlling person of an entity holding an account, and about the financial account, to the Director of the Tax Authority, who shall transfer it to the tax authority of a foreign country. It should be noted that under the FATCA agreement, even if checks are made to verify the identity of a person who has an indicator of being a US citizen (for example, based on a Social Security number, citizenship, telephone number, or address in the US), the information to be transferred relates to an individual who has an amount exceeding $50,000 at a financial institution, or $250,000 in the case of an entity. Regarding the transfer of information from the Director to a tax authority in a foreign country, the Director shall act solely as a conduit and may not make use of information received from financial institutions except for the purpose of transferring it to tax authorities in foreign countries. Under the FATCA agreement, a financial institution that does not act in accordance with the agreement's provisions shall be subject to withholding at source at a rate of 30% of any deductible payment from a US source of income transferred to that financial institution. It is further provided that a financial institution shall send a notice to anyone it has classified as a citizen or resident of a foreign country, stating that information about them and about the financial account held by them or by an entity under their control is expected to be transferred to the Director of the Tax Authority for transfer by the Director to a tax authority in a foreign country. Such notice shall be sent at least 30 days before the information is transferred to the Director. In addition, it is provided that the financial institution shall send, once every two years, a notice to that person stating that information concerning them is being transferred as described to the Director of the Tax Authority - in order to allow the person to rebut the presumption that they are a citizen or resident of a foreign country, insofar as they can prove this. In addition, a monetary sanction is established against a financial institution that did not require an account holder or a person seeking to become an account holder to provide it with information, or did not conduct the checks required to classify the account holder as a foreign citizen or resident, or did not transfer information to the Director of the Tax Authority. The Director of the Tax Authority was authorized to publish the imposition of the monetary sanction, the nature and circumstances of the violation, and the name of the violating corporation for a period of four years. The Prohibition on Money Laundering Law, 2000, was also amended, adding to it a definition of "means of control" and replacing the definition of "control" with a definition of "controlling person." In addition, it is provided that the transfer of information by a banking corporation or a reporting financial institution shall not be considered a breach of the confidentiality section of the Prohibition on Money Laundering Law, insofar as it concerns information regarding the identification of a service recipient required solely under the FATCA agreement or an implementation agreement. This Amendment shall come into effect on the date of publication of regulations set by the Minister of Finance, except with respect to the monetary sanctions and the definition of "controlling person" in the Prohibition on Money Laundering Law, which shall come into effect six months later.

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