The second stage, phase one peer review report on Israel’s implementation of standards on the exchange of information on request was published by the OECD on 9 November 2022.
The first review noted that although a regulatory framework was in place it needed some improvement. Israel should ensure that information is available on the identity and accounting records of a foreign trust with a trustee resident in Israel; and for trusts set up by new immigrants or veteran returning residents that are vested with assets or income from abroad. Also, the first stage peer review noted that Israel’s exchange of information agreements should be brought into force as quickly as possible and the network of EOI treaties should be expanded further. Confidentiality rules for information received under treaties that do not give relief for double taxation should be brought in line with the standard.
The stage two report notes that Israel has made progress on these issues and importantly the Multilateral Convention on Mutual Administrative Assistance in Tax Matters entered into force in relation to Israel on 1 December 2016.
A Committee for legislative amendments, formed in 2021, has agreed on measures to implement the recommendations, but further work is needed to ensure that these measures are adopted.
Beneficial ownership
The report notes that the main source of beneficial ownership information is the anti-money laundering (AML) legislation requiring banks and other entities to provide information on the beneficial owners of their clients. This however does not cover all the relevant entities because not all legal entities need to engage with an institution that has AML obligations.
The determination of beneficial ownership of trusts and other arrangements does not include the persons that exert ultimate control over the trust and is therefore not in line with the standard.
The AML legislation in Israel does not set out a required frequency for an entity responsible under the AML rules to update the information. The report therefore recommends that beneficial ownership information is obtained when an account is opened and is updated whenever there is any doubt about the identity of the beneficial owner or when a new beneficial owner is added to the account.
Another point made by the report is that the competent authority for exchange of information purposes does not have access to information held by persons obliged to comply with AML rules where this information is required following an information request under a civil tax investigation. As the AML legislation is the only source of beneficial ownership information, this may restrict access to information on beneficial ownership. The report therefore recommends that the competent authority should have access to the beneficial ownership information and other documents held by institutions reporting under the AML rules.
The report recommends that Israel should address the issues raised in relation to availability of information, to ensure that up-to-date beneficial ownership information is available in relation to all legal entities and arrangements.
Next steps
Phase one of the stage two peer review only examined the legal and regulatory framework for the exchange of information. Phase two of the stage two peer review will examine how the exchange of information on request is working in practice.
