Israeli banks will have to file client data to the US Internal Revenue Service (IRS) under the Foreign Account Tax Compliance Act (FATCA) despite a legal challenge by American expats.
The High Court in Jerusalem rejected their argument that FATCA breached their privacy and overturned an injunction ordering the government to halt work on readying the data transfer by the end of the month.
The banks and other Israeli financial institutions must tell the IRS about any accounts they hold that are controlled by US taxpayers.
If the taxpayer lives in the US, any accounts with balances over $50,000 are reported, while US expats have a higher limit of $200,000.
Fight for privacy
The legal challenge was launched by Republicans Overseas in Israel, a group of US expats living in Israel that oppose FATCA.
The Republican issue is the law lifts the veil of privacy individuals have over the personal finances. However, the courts think differently.
“FATCA is 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,” said Judge Menachem Mazuz
“This is a type of agreement where countries assist each other judicially, enabling each country to enforce its laws abroad. Whoever this does not suit can choose their own path.”
Mazuz, speaking for the High Court, also explained that individual privacy has to be balanced against the greater good.
“This is life today. Privacy is very limited today,” he said. “The alternative would be crimes of all types. There is nothing new here, the only difference is that there is a law involved now. It is like requiring licenses to run a business – a limitation by the government, and subjecting the individual to regulation and supervision. Without this, modern society cannot function.”
The Republican opposition in the US has already lost a similar law suit in Ohio and other expats in Canada saw their anti-FATCA campaign founder as well.
So far, 113 countries and more than 210,000 financial firms have signed up to make reports under FATCA.
Israeli banks say US customers have withdrawn $5 billion since FATCA became law in 2014.