The Common Standard on Reporting and Due Diligence for Financial Account Information (CRS) is approved – and Israeli citizens with overseas holdings or bank accounts face retroactive reporting
Israel’s Parliamentary Finance Committee has, on January 2019, approved several statutes, which were included in the Israeli Income Tax Regulations published on February 6, 2019, which implement the Common Standard on Reporting and Due Diligence for Financial Account Information (“CRS”), which was developed by the OECD.
What this means is that Israeli banks and financial institutions are now compelled to share information concerning accounts of foreign residents with international authorities – and that they in turn shall be required to do the same. The only exemptions are for Philanthropic Jewish orthodox community lending institutions, an exemption that is the result of the need to fend off opposition from Israel’s ultraorthodox parties.
The purpose of the CRS is to combat tax evasion, which is estimated to account for over 5% of world GDP. As such, accounts containing over one million dollars will be particularly targeted for monitoring. Nonetheless, any individual account holder may appeal before their information is transferred.
Israel will initially exchange information with 60 signatories. These include (in)famous tax havens such as Switzerland, the Cayman Islands, and Macau. These tax havens are a major source for foreign investment in Israel, including its high-tech sector.
In 2018, the Israeli government’s Central Bureau of Statistics (CBS) revealed that the Cayman Islands is the third most common source of foreign investment in Israel, providing $6 billion, or 6.6% of all foreign funding, to Israeli ventures in 2016.
This development no doubt has many Israeli individuals and companies rushing to their accountants, Controllers, CPAs and CFOs, in order to put their bookkeeping and financial planning in order. They may, however, be too late as the CRS regulations require retroactive reporting of financial accounts and implementation of automatic exchange of information with some of the signatories- including notably Australia, Canada and the United States. Information on accounts existing in 2017 is to be reported no later than 23 June 2019. Information on accounts existing in 2018 shall be reported no later than 8 September 2019.
Nonetheless, reaching a settlement regarding back-tax issues with the Israeli (and American or other) tax authorities is both possible and highly recommended. Finding the right financial manager to do it for you is another matter.