The Supreme Court on Monday threw out a petition against the state’s decision to implement US legislation forcing Americans living in Israel to fully disclose their foreign bank accounts.
The bid to terminate Israel’s compliance with the US Foreign Account Tax Compliance Act, known as FATCA, had been filed by the local branch of the US Republican Party, though it is unpopular among Americans from across the political spectrum.
FATCA requires Israeli financial institutions to report American citizens who hold accounts in Israel, including dual citizens, to the Israel Tax Authority by September, which in turn, will hand over tax information to the IRS by the end of that month.
Israeli banks have already begun enforcing the law. The measure, enacted in 2010, is seen by many as too invasive and unconstitutional, though the US says it is necessary to combat international efforts to evade paying taxes.
In court, lawyers representing Republicans Overseas Israel argued that Israel’s 2014 agreement with the US tax authorities to implement the law allows for the “comprehensive and automatic transfer of personal data to the United States,” which it said a violation of one of the Basic Laws that are regarded as Israel’s foundational charter.
“We fought hard to protect the privacy rights of 300,000-400,000 American citizens and Green Card holders here in Israel, a fight that has lasted over two years and has now come to an end — at least this chapter,” Marc Zell, co-chair of Republicans Overseas Israel and one of the plaintiffs in the case, told The Times of Israel on Tuesday.
Supreme Court Justice Menachem Mazuz, though, appeared to argue that the requirements of the modern world trump individual rights.
“What can be done? In the modern world the right to privacy is very limited,” Mazuz said. “The alternative to privacy is criminal acts of every kind. This is nothing new, except for the fact that it is regulated now under law and other mechanisms. It’s like the infringement on the right to freedom of occupation. There is always a need for licensing, regulation, and supervision. There are many infringements on freedom of occupation, right to property and privacy, because without it modern society cannot function.”
Zell said he was puzzled by that argumentation. “He basically almost wrote the fundamental right of privacy out of the Basic Law. It’s an amazing statement,” he said.
“We will continue to defend the right of privacy of American citizens and others against this gross invasion of their privacy by the government for reasons that have nothing to do with Israel. The only purpose served by the Israeli FATCA law is to basically turn Israel into an agent for the Internal Revenue Service. That is not a proper role for a sovereign state,” Zell said.
Noting that FATCA was passed by Democratic legislation and is vehemently opposed by Republican lawmakers, Zell said he looked forward to Donald Trump winning the upcoming presidential elections and repealing the law.
Even certain chapters of Democrats Abroad opposed FATCA, though Zell claimed only Republicans Overseas Israel “had the gumption to attack it” with legislative and legal efforts.
Last month, as the court case was still pending, the Knesset Finance Committee had approved a series of regulations by the Finance Ministry, paving the way to full implementation of FATCA. In 2014, Jerusalem and Washington signed an agreement “for improving international enforcement of taxes and for implementing provisions of FATCA.”
US citizens and Green Card holders who hold accounts in Israel, and who have less than $50,000 in their accounts, are exempt from the reporting requirements. However, if the IRS suspects the banks are withholding information, all accounts will be liable for review, according to a statement from the Finance Ministry.
The Israeli financial institutions must give their clients 30 days’ notice that their information will be handed over to the US authorities.
When the agreement was announced, the deal was seen to be of particular concern to dual citizenship holders who have either failed to file tax returns or have not reported their income tax correctly.
Times of Israel staff contributed this report.