All preparation to meet the US Foreign Account Tax Compliance Act in Israel has come to a halt as the Israel High Court issued a temporary injunction and ordered an emergency hearing for September 15.
This is the second time that FATCA has been challenged in the courts by dual citizens living outside of the US. The Federal Court of Canada dismissed two similar cases brought before it requesting the court stop the transfer of information between the Canada Revenue Agency and the Internal Revenue Service in October 2015.
Some market observers hope that Israel’s move will lead other nations to refute the non-reciprocal agreement.
“Justice Meltzer’s action should be championed,” said Nigel Green, founder and CEO of financial advisor deVere Group. “His wise caution should serve as a wake-up call for other countries to rethink enforcing this toxic, flawed, damaging legislation that is being imposed on sovereign states around the world by the US.”
Under the US tax law, all non-US financial institutions are required to report the financial information of US citizens and green card holders who have account holdings more than $50,000 to the Internal Revenue Service on a regular basis.
Israeli financial institutions, as well as the rest of the financial institutions that fall under FATCA’s Model I inter-government agreement, are slated to begin reporting the income paid to FATCA-eligible clients starting on September 30 for the 2015 tax year.
Justice Hanan Meltzer made his decision after Rinat Schreiber, a dual citizen of the US and Israel, filed a tort claiming that FATCA violated the nation’s Basic Law on Human Dignity and Liberty, reported Haaretz.
Marc Zell, an attorney at Zell, Aron & Co. and who represents Schrieber, estimated that between 4% and 5% of the nation’s total population would be affected by FATCA.
The government’s attorney reportedly stated in court that ““[Israeli] financial institutions could be cited as failing to comply with FATCA, which could immediately undermine their ability to work with financial institutions in the U.S. and worldwide that would hesitate to work with institutions regarded as not in compliance with FATCA.”
Under FATCA, if foreign financial institutions fail to provide the requested information, the US would impose a 30% withholding tax on most US-sourced income payments to that financial institution, according to the Dave Wolf & Co. law firm.
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