As we wrote recently, the Supreme Court of Israel was considering a challenge to the legality of the Foreign Account Tax Compliance Act, or FATCA. FATCA is a U.S. law under which banks and other financial institutions outside the United States are required to report financial information on American citizens and green card holders who have $50,000 or more. Failure to do so would lead to substantial penalties on any American assets.
This law, intended to limit tax avoidance, could profoundly impact many of the more than 300,000 people living in Israel who have dual citizenship in the United States. FATCA will also impact the many American taxpayers who have Israeli bank accounts.
In 2014, the Israeli government agreed to comply with FATCA. Under the terms of this agreement, Israel was to be fully compliant with these laws by January 1, 2017. In response to a challenge from Israeli taxpayers, the Supreme Court of Israel issued a temporary injunction on the reporting of this information. The injunction did not last long. On September 12, the Court held that the Israeli law approving transfer of bank information to the United States did not violate Israeli law.
"Privacy in modern life is very limited"
When making its ruling, the Supreme Court of Israel was faced with balancing privacy needs and preventing tax avoidance. In the end, it ruled in favor of preventing tax avoidance. Justice Menachem Mazuz, speaking for the court, stated that "Privacy in modern life is very limited," and that Israel's law was "just a method with which Israel's financial institutions can assist in compliance with a law that the petitioners are required to follow anyway, and would be required to follow even if there was no agreement."
Practically speaking, the enforcement of FATCA could create issues for dual citizens, particularly dual citizens with few U.S. ties. While Israeli citizens could choose to renounce their U.S. citizenship, they would still face an expatriation tax. Considering the complexity of international tax issues and what is at stake, it is essential for any taxpayer facing these challenges to enlist the services of skilled legal counsel. The attorneys of Goldburd McCone LLP take a strategic, dynamic approach to helping clients with international ties resolve tax challenges on favorable terms.
Sources: High Court: FATCA Rules Not a Violation of Privacy, Hamodia, September 13, 2016, by Dov Benovadia, Supreme Court Dismisses Case Against Border-Hopping US Tax Law, The Times of Israel, September 13, by Raphael Ahren