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The Israel Tax Authority (ITA) has confirmed that there have been reciprocal exchanges of information, on both American citizens in Israel and Israeli citizens in the United States, under the countries' Foreign Accounts Tax Compliance Act (FATCA) intergovernmental agreement (IGA).
The ITA noted that, following the dismissal in September 2016 by the Supreme Court of Israel of a petition calling for an injunction to stop information exchanges under FATCA, it transferred financial information to the United States, as required by the IGA, before the end of last year.
However, it said that, within that process, information has also been provided in the opposite direction, on more than 35,000 Israeli citizens with financial accounts in the United States.
The ITA noted that an Israeli resident is entitled to have financial assets abroad, but has to report to the tax authority all of the income generated, including interest, dividends, and capital gains. It is now comparing the records it has now been given against the details it holds.
FATCA is intended to ensure that the United States obtains information on accounts held at foreign financial institutions (FFIs) by US persons. Failure by an FFI to disclose information on their US clients will result in a requirement to withhold 30 percent tax on payments of US-sourced income.
To address situations where foreign law would prevent an FFI from complying with the terms of an FFI agreement, the US Treasury developed model IGAs. Under the terms of the Model 1 IGA signed on June 30, 2014, between Israel and the United States, Israeli FIs are required to report their information to the ITA, who will then automatically exchange the information with the United States.
Under the IGA, the automatic exchange of information is intended to be reciprocal, and data will therefore continue to be available annually on accounts held in the United States by Israeli residents.
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