FATCA (The Foreign Account Tax Compliance Act) was legislated in May 2010 and entered into force In July 2014.
It obliges U.S. taxpayers, namely American passport holders and American social security number owners, to report foreign financial accounts, whose value exceeds 10,000 dollars, and offshore assets to the IRS (Internal Revenue Service). It also obliges foreign financial institutions to report financial accounts whose value exceeds 10,000 dollars held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest. This obliges U.S. taxpayers even if they do not reside in the U.S and even if they have an Israeli citizenship.
FATCA was enacted as part of the U.S struggle against tax non-compliance. By applying it the U.S wishes to tax all of its assessee international income. More specifically the IRS wishes to collect tax on its assessee accounts.
The banks must locate the bank accounts of U.S customers and sign them on a W9 form. This is a Request for Taxpayer Identification Number (TIN) and Certification Form. The form is to be submitted to the IRS by June 30th of the following tax year.
The banks have held a duty to disclose to the IRS information regarding foreign accounts as early as the 1970’s, when The Currency and Foreign Transactions Reporting Act of 1970 (which is commonly referred to as the “Bank Secrecy Act” or “BSA”) was enacted. The act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000, and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. The BSA is sometimes referred to as an “anti- money laundering” law.
Through the years several other “anti-money laundering” acts have been enacted to amend the BSA including provisions in Title III of the USA PATRIOT Act of 2001, until in 2010 Congress passed FATCA which as demonstrated imposes additional reporting requirements on taxpayers separate and distinct from the Bank Secrecy Act.
Cooperation of Bank of Israel
Many countries which have strong relationships with the United States have instructed their local banks to follow FATCA, as did Bank of Israel.
In early 2014 bank of Israel directed the banks to prepare for implementing of FATCA. Israel has committed to surrender to the U.S information regarding U.S. taxpayer’s accounts. The U.S in return is to surrender to Israel information regarding Israeli taxpayer’s accounts.
These decisions influence an estimated number of 100,000 U.S citizens who reside in Israel.
A bank which does not provide the information demanded about its U.S clients is subject to penalties, ranging from heavy fines to barring it from the U.S. A number of Swiss and Israeli banks have already been fined in large sums in the past for failing to disclose information about their U.S customers. For example in 2009 UBS bank was fined 780 million dollars. Bank Leumi fined 270 million dollars.
Penalties might also be imposed on American taxpayers; they can be fined up to 100,000 dollars or up to 50% of their account’s value.