Cross Border Risk Management Policy
Inter-State Agreement: An agreement between the State of Israel and the U.S. tax authorities, which regulates the manner of implementation of the FATCA provisions on banks in Israel, and which stipulates, inter alia, that the duties shall apply to banks in Israel by virtue of Israeli law, and that the banks shall report to the Israeli Tax Authority and not directly to the IRS.
The FATCA Law - The Law for the Amendment of the Income Tax Ordinance (no. 227), 5776-2016. The Law enables the State of Israel to implement the FATCA agreement and other "implementation agreements" as defined by the Law. The Law stipulates, inter alia, that financial institutions should require information from account owners, or from anybody seeking to become an account owner, including entities and controlling persons, and carry out inquiries to verify their identity and tax residency, or their citizenship, for the purpose of implementing the FATCA agreement or another implementation agreement.
FATCA Regulations - Income Tax Regulations (Implementation of the FATCA Agreement), 5776-2016 as promulgated under the Law, which adopt the provisions of the Inter-State Agreement and apply it also to the bank in Isral.
SEC Directives - In accordance with the SEC directives, the Bank cannot provide securities services to customers who are U.S. residents, without the receipt of an appropriate license from the U.S. authorities.
FATCA - On July 14, 2016, the FATCA Law (Foreign Tax Compliance Act) was published and on August 5, 2016 the regulations which regulate in Israel the implementation of the FATCA agreement were issued. Pursuant to the regulations, banks and other financial institutions in Israel are required, inter alia, to provide the Israel Tax Authority (ITA), on an annual basis, information with respect to account owners who are U.S. Persons, and the balances in their accounts, and ITA shall forward the same to the IRS.
The Bank implements the provisions of FATCA under the agreement, the Law and the regulations, according to the schedules that were set forth.
QI - In 2001, the Bank first signed the QI Agreement with the IRS. According to this Agreement, the Bank is required to, inter alia
a. Perform identification and documentation of customers that transact with U.S. securities, according to the information held by the Bank, and in accordance with the customers’ declaration with respect to their status and country of residence.
b. Withhold tax from income on securities, from a U.S. source, at a rate of 30% for all non-U.S. customers (unless they are entitled to an exemption or to reduced tax in the source country of the same customer due to a tax treaty).
c. Withhold tax at a rate of 28% for its U.S. customers who did not provide a sufficient declaration on their being U.S. persons (tax will not be withheld from U.S. customers who provided the required documentation - i.e. an adequate Form W9).
d. Report to the IRS on customers’ income from U.S. securities.
CRS - In the framework of the Common Reporting Standard (“CRS” or "CRS Standard”) which was developed by the OECD, the Bank will be required to collect information on accounts of foreign residents (for tax purposes) held thereby, in order to transfer this information on an annual basis to the Israel Tax Authority. The tax authority will transfer the information to the account owners’ countries of residence, and will receive from those countries details on accounts held by Israeli residents in their jurisdiction.
The State of Israel undertook to exchange information, commencing from 2018, with foreign countries with which it has a valid agreement. The information that will be transferred relates to 2017 forth, and will include details on financial accounts held in financial institutions in Israel by foreign residents (for tax purposes) or by certain legal entities (passive entities similar to FATCA) which have a foreign controlling person. The information must include the details of the account owners, the balances in the account and financial income received in the same account. The Bank is preparing for the implementation of the draft regulations and for reporting in 2018 on the basis of the draft circulated by the Ministry of Finance, and has begun identification of customers and receipt of information on the tax residency of its customers as required in the CRS Standard.
Compliance with Foreign Law
The Bank is required to comply with the QI (Qualified Intermediary) Agreement, FATCA (Foreign Tax Compliance Act) provisions, the relevant SEC directives, the inter-governmental agreement and provisions of the Israeli law which adopt and enforce the agreements. Additionally, the Bank is preparing for the implementation of CRS (Common Reporting Standard) and will perform the adjustments required on the date the CRS regulations are published, accordingly.
The Bank is interested in preventing use of its services as a means of circumventing or evading compliance with the provisions of FATCA, CRS and the QI agreement and other foreign tax laws, and blocking incoming customers who were declined by other financial institutions for reasons related to the implementation of these provisions. Bank employees are prohibited from giving advice on matters of taxation, both in Israel and in foreign jurisdictions, and in particular with respect the manner of identifying the account as a US account or in connection with U.S. taxation.
The Bank will not grant banking services to customers seeking to perform transactions whose apparent objective is to evade or circumvent the tax laws in foreign jurisdictions, and in particular the provisions of FATCA, CRS and the QI Agreement, or who do not cooperate with the Bank in the implementation of these provisions, or who seek to perform transactions which raise a substantial concern for assuming they are related to an attempt to circumvent tax laws in foreign jurisdictions, and in particular the provisions of FATCA, CRS and the QI Agreement.
Managing the Accounts of Customers with Affiliation to Foreign Countries
Customers who have reported foreign citizenship or residency for tax purposes in a foreign country, or customers regarding whom the bank identified an indication alleging foreign affiliation, will be required to declare the countries in which the customer is a citizen and countries in which he/she is a resident for tax purposes; that he/she fulfills is familiar with the reporting duties applicable to him/her with respect to his/her accounts at the Bank; and that the customer has paid and continues to pay all taxes applicable thereto in the relevant countries, in connection with these accounts. The declaration includes waiver of customers who hold foreign tax residency of the confidentiality imposed on the Bank in relation to his/her accounts, in the event that the Bank is required to disclose information about him/her or his/her account to a competent authority in Israel or abroad.
Customers for whom there exist indications alleging a foreign affiliation will be required to produce documents and evidence in cases where their declaration does not include a declaration regarding residency for tax purposes in such country, and concerns arise as to the correctness of the declaration.
Customers who receive funding from at risk or off-shore countries, outside the framework of commercial activity will be required to produce confirmations, documents or evidence indicating that they are reporting and paying taxes as required, as they were obligated at the day of funds receipt, by the relevant countries.
Managing Accounts for Customers who are foreign residents/foreign tax residents
Many countries restrict the banking transactions of their residents, including financing, engagement, transactions related to investment consultation and other bank transactions. The Bank will map out the dos and don’ts in the main countries that are relevant to its business according to an opinion received from an International Consulting Company, and will use it in the ongoing operations of all of its business units as well as in the regular training and implementation activity.
The Bank will manage accounts for foreign resident customers and foreign tax residents only in specializing branches that were trained to recruit and carry out the regular business with these customers.
Refusal to Open Accounts and Perform Operations
The Bank will not open an account, nor will it enable any transaction therein, for a customer who objects to signing a declaration regarding tax residency and waiver of confidentiality, if so required by the Bank.
- Declaration of Tax Residency for Individuals
- Declaration of a Corporation/Entity on Tax Residency and Classification for FATCA and CRS Purposese.
The Bank will not allow a customer to receive funds from abroad if the customer has refused to produce confirmations, documents or evidence indicating that these funds are being reported and taxed as required, if so required by the Bank.
The Bank will not allow transactions that patently lack economic reason, without being provided with a suitable explanation.
The Bank will deny transactions of customers who refuse to cooperate with the requirements made of them by the Bank within the cross-border risk management, pursuant to the policy herein.
The Bank refuses and will refuse to provide securities services to customers who declare that they are U.S. residents or customers on whom the Bank has indications pointing to their being U.S. residents, and who did not present sufficient evidence to rebut the same.
A number of agencies in the world, including OFAC (of the U.S. Treasury Department) and the EU, inflicted sanctions on some individuals, agencies and countries. The Bank will not perform transactions that are contrary to the OFAC and EU sanction programs.
In addition, the Bank's management may decide to adopt "black lists" that were set by other countries, of individuals and bodies with whom trading in such countries is prohibited.