Foreign bank account in Israel: Last chance for voluntary disclosure

June 30, 2015 Nicolas Simard

On March 16, 2015, The Bank of Israel issued an anti-tax evasion directive aimed at avoiding Israeli financial institutions being used by foreign taxpayers to move assets and income offshore, out of reach of the tax authorities of their countries of residence. Israel may now obtain bank information on accounts opened by non-residents and it will begin the process of exchanging tax information with other countries, such as Canada, in 2017.

The directive stipulates that Israeli banks must require their foreign clients to provide them with a declaration containing the following information:

the customer’s country of residence for tax purposes;
confirmation from the client that his or her aggregate investments and assets have been reported to the tax authorities of the resident jurisdiction (e.g., Canada) or, alternatively, a declaration to the effect that he or she has initiated a voluntary disclosure procedure in the resident jurisdiction; and
a waiver from the taxpayer pursuant to which Israeli banks would be allowed to provide confidential bank account information to non-Israeli tax authorities

Israel may disclose the identity of their non-resident clients and report the funds held in their accounts to the tax authorities of their respective countries of residence

The purpose is clear: Israel may disclose the identity and amount of funds held by non-resident clients of Israeli banks to the tax authorities of their respective resident jurisdictions[1]. The best-known Israeli banks are Bank Leumi and Bank Hapoalim.

The Bank of Israel’s directive is part of the global trend to combat tax evasion led by the U.S. with its Foreign Account Tax Compliance Act (FATCA). Over 65 jurisdictions[2] (including Canada and Israel) have undertaken to follow the Standard for Automatic Exchange of Financial Information in Tax Matters, which provides for the automatic exchange of financial information. Of that number, the vast majority will begin exchanging information in 2017.

Israel has required its financial institutions to comply with the directive and obtain the obligatory information from their clients by December 31, 2015 respecting taxpayer accounts identified as “high risk” and the deadline is December 31, 2016 for other clients. Many Israeli banks have begun implementing a process in compliance with the directive and a number of Canadian taxpayers with bank accounts in Israel have received letters from their banks requiring such information. Other Canadian taxpayers holding funds in an Israeli bank should expect to receive such a request in the near future.

Canadians holding funds in a bank account in Israel should expect to receive a request for information in the near future

In light of the above, we are advising taxpayers with bank accounts in Israel that they did not declare in Canada, to make a voluntary disclosure to the Canadian tax authorities. Under the voluntary disclosure program, taxpayers would report all their foreign assets to the tax authorities and pay the taxes that they should have paid on funds held outside Canada. In exchange, the tax authorities have undertaken to reduce the accrued interest on all such taxes owing, not impose penalties and not prosecute the taxpayer respecting the funds disclosed under the program.

Voluntary disclosure in Canada is an easy procedure and the cost of doing so has never been more affordable.

[1] In accordance with its undertakings, as discussed below.

[2] Andorra, Anguilla, Argentina, Australia, Austria, Belgium, Bermuda, Brazil, the British Virgin Islands, Bulgaria, Canada, the Cayman Islands, Chile, Colombia, Costa Rica, Croatia, Cypress, the Czech Republic, Denmark, Estonia, the European Union, the Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Guernsey, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Montserrat, the Netherlands, New Zealand, Norway, the People’s Republic of China, Poland Portugal, Romania, the Russian Federation, Saudi Arabia, Singapore, the Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey, Turks and Caicos, the United Kingdom and the United States of America. On that subject see Automatic Exchange of Information” on the OECD website.