Adopting the procedure will significantly assist in the fight to reduce black money
The Ministry of Finance has notified the Organization for Economic Co-operation and Development (OECD) that Israel will adopt the procedure for the automatic exchange of financial account information for tax purposes (CRS – Common Reporting Standard) by the end of 2018. The procedure is to be implemented via an agreement drawn up between the relevant authorities in countries complying with the procedure. In joining this move for the automatic information exchange and the relay of current information concerning the income and assets of Israelis, the State of Israel is significantly contributing to the fight to reduce black money.
According to the procedure, financial institutions (e.g. banks and insurance companies) will institute a process for identifying the owners of accounts held in those institutions. This is to be followed by the financial institutions relaying information pertaining to account holders who are residents of foreign countries to the relevant tax authorities. The information will include balances and financial revenues. In order to implement the provisions of the procedure, legislative amendments will be needed.
The OECD’s information exchange procedure is similar to FATCA (Foreign Account Tax Compliance Act) agreements signed between the U.S. and numerous other countries, including Israel. However, while FATCA requires that financial institutions identify U.S. citizens and residents, the OECD procedure necessitates identification based on residency only.
Tax evasion and tax fraud, a challenge that numerous countries face, present a danger to citizens’ trust in a proper and just tax system. Removing obstructions and liberalizing the movement of capital have led to financial globalization. As the world becomes increasingly global, it is easier to make investments via foreign banks, hold investments in tax shelters, and avoid meeting tax obligations.
The OECD, in cooperation with G20 countries, concluded that the solution should be cooperation between countries in the form of an automatic exchange of information on financial accounts. The advantage of this solution lies in the simplification of processes, enhanced effectiveness and reduced costs.