Israeli court quashes bid to stop FATCA enforcement

Israel’s high court yesterday cancelled a temporary injunction and rejected a legal attempt to prevent Israel’s implementation of the US Foreign Account Tax Compliance Act, crushing the hopes of FATCA opponents around the world.

According to reports out of Israel late on Monday night, the Israeli government agreed that individual taxpayers with concerns could be given at least 30 days to object to their inclusion on the registry that will ultimately provide tax information about holders of Israeli bank accounts to the US Internal Revenue Service, as FATCA requires.

Apart from this, Israel is now set to go ahead with its original plans to begin implementing the US law this month, as originally stipulated by Israel’s parliament.

The online edition of  Haaretz, the Israeli daily newspaper, reported that the three-judge panel that made the ruling in the case said it would elaborate on the reasoning behind its decision “at a later date”, but that it said, in essence, “that they found the Israeli-US agreement on information-sharing” – FATCA – “an appropriate mechanism for addressing the problem of tax evasion”.

Haaretz quoted Justice Menahem Mazuz as saying: “It is difficult to think about a purpose of a law more worthy than this legislation, which is part of a long series of acts taken over the past 20 years to combat the black market, tax evasion and international crime. All of them require reporting that harms privacy.”

As reported, the suit was filed by the Republicans Overseas Israel, an organisation of expatriate Republican party supporters. Rinat Schreiber, a dual citizen who has an account at Bank Hapoalim was also a plaintiff, Haaretz said. They had argued that the mechanism Israel was proposing to use to gather and share the tax-relevant information on American holders of Israeli bank accounts and other financial accounts would violate  key Israeli laws having to do with key fundamental human rights, including privacy.

However, Haaretz quoted Mazuz as arguing, “Privacy in modern life is very limited, and the alternative of privacy is a crime.”

The paper also quoted another of the justices, Hanan Meltzer, as citing “three reasons to allow the law – the value of preventing tax evasion, cooperating with the many other countries that are combating the problem, and the fact the US would likely impose sanctions on Israeli banks that failed to provide the data”.

Tax evasion legislation

FATCA was quietly signed into law by President Obama in 2010, in order to crack down on the use of offshore accounts to avoid US tax.  Although barely noticed at first, as it was contained in a piece of legislation aimed at boosting US employment rates, FATCA quickly began to cause problems for expatriate Americans in particular, as banks around the world concluded it would be easier and less costly to get rid of their handfuls of American clients than to comply with the law’s onerous reporting requirements.

Opposition to FATCA outside of the US quickly grew, with expatriate Republican party members among the most vociferous, but it has nevertheless proven unstoppable. In July, Israel’s Knesset paved the way for the legislation necessary to provide for the disclosure by Israeli financial entities, such as banks.

FATCA obliges most foreign financial institutions to report to the Internal Revenue Service information about any accounts they have that belong to Americans, whether resident in the US or elsewhere, worth US$50,000 or more.

Around 300,000 to 400,000 US citizens are estimated to live in Israel, which represents roughly 4% to 5% of the total population.

Reaction

Marc Zell, co-chairman of the Republicans Overseas Israel and a lawyer with the Jerusalem law firm of Zell, Aron & Co, which was also involved in the action, said the result was “not unexpected”.

“The court was critical of the government’s handling of what I would describe as procedural process issues.  On the merits, one of the justices expressed a cynical view of the right to privacy which was the core issue in our petition.

“The justice stated that in today’s modern, globalised world, little remains of an individual’s right to privacy other than providing a convenient headline in cases such as this.  I found this comment quite astounding, in view of the fact that the right to privacy is expressly protected by Israeli basic law as it is in Europe and in most Western jurisdictions.”

Solomon Yue, vice chairman and chief executive of Republicans Overseas, told International Investment that the Israeli Supreme Court’s FATCA decision “does not change our resolve to defend 9 million overseas Americans’ privacy rights and constitutional protections”.

Yue went on to reveal that Republicans Overseas had been asked to assist in the organisation of hearings “tentatively planned for the House Oversight Committee” in connection with a bill (H.R. 5935) introduced earlier this month by Rep Mark Meadows (R-NC) that would repeal FATCA.

“We are fighting for all overseas Americans’ equal rights under the US Constitution and now what we need is to elect a Republican President to sign the FATCA repeal legislation.”

‘No power on earth…’

Meanwhile,  US-based FATCA expert Richard LeVine said it was unlikely “any power on earth” could stop FATCA going ahead now, both in the wake of this judgement and after recent comments by the US Treasury that outlined its intention of going ahead with FATCA implementation in cases in which certain countries have failed to move quickly enough to comply.

LeVine,  a lawyer with Withers Bergman in New Haven, Connecticut who specialises in cross-border tax planning for owners of privately held companies and other high-net-worth US and non-US foreign individuals, added: “It would take a very large stick, and someone outside the US, being willing to wield it [to stop FATCA going ahead now].

“But I do not see any combination of ability and intention anywhere in the world, so in my view, FATCA is going to keep on rolling forward.”

ABOUT THE AUTHOR
Helen Burggraf
Helen Burggraf is the editor of International Investment. A US-trained journalist, she has worked in Rome, New York City and London, covering everything from the fashion and retailing industries to the global drinking water and water-treatment sector, private equity, and most recently, the international cross-border financial services/advice industry.

Read more from Helen Burggraf

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