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On March 18, 2010, the US government instituted the FATCA (Foreign Account Tax Compliance Act) provisions within the framework of the HIRE Act.[1] This was part of US moves to combat the phenomenon of evading US taxes by opening accounts outside the US. On January 17, 2013, the US Department of the Treasury enacted the regulations for implementing the law’s provisions. According to the provisions, which go into effect on July 1, 2014, financial institutions (such as banks) operating outside the US are required to report accounts held by what is called US Persons to US authorities , and to impose sanctions (such as withholding from payments to customers) on customers who do not cooperate with the financial institution. A financial institution that does not cooperate with US authorities will itself be subject to various sanctions, in particular withholding of 30 percent on US-source payments to them.


The US government recommends that interested countries sign an intergovernmental agreement to implement the FATCA provisions, which will allow real easing in the implementation of the provisions, specifically on the issue of imposing sanctions on customers that do not cooperate. The process of signing such an agreement with the Government of Israel has not yet been completed. In light of the possible impact on the domestic banking system, the Bank of Israel today published draft guidance for banking corporations to prepare for the implementation of the FATCA provisions, whether or not an intergovernmental agreement is signed before July 1, 2014. In particular, the banking corporations were instructed with respect to:

 

  1. Corporate governance processes (appointing a person responsible for the issue, appointing a work team, establishing policies and procedures, reports to the management and to the board of directors).

  2. Examining the need for registering and signing an agreement with US authorities, in line with the timetables set in the provisions.

  3. The manner of conduct vis-à-vis customers, particularly the possibility of refusing to provide banking services to a customer that does not cooperate with the banking corporation in the manner required for implementation of the provisions.


[1] The provisions were enacted in the Hiring Incentive to Restore Employment Act of 2010 Pub. L. 111-147 (HR 2847), an amendment to the US Internal Revenue Code.