As a result of the efforts of the Organization for Economic Cooperation and Development (OECD), the G20 and the EU to combat tax evasion on an international scale, The Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Convention) has appeared. This contract has been signed by 136 countries as of today, including countries such as Switzerland, Norway, Brazil and India, as well as EU member states. Turkey signed the Convention on 2011.
Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (the Agreement) was signed on 21.04.2017 after 6 years by 107 countries so far, including Turkey. The Agreement was approved on 21.12.2019. According to the Agreement, the signatory countries will share the financial account information of the resident of the relevant country which is collected from the financial institutions every year automatically without any request. Turkey's authorized institution is Turkish Revenue Administration under the Ministry of Treasury and Finance in the scope of the Agreement.
In this context, Turkish Revenue Administration has published "the Guideline on the Application of the Automatic Exchange of Financial Account Information in Tax Issues" (the Guideline) on the official website aiming to explain the standard which was created by OECD in 2014.
The highlights of the Guideline are briefly explained:
1. List of Countries for Automatic Information Exchange
The Guideline includes the list of signatory countries and the countries that Turkey will exchange information within the scope of the Agreement in 2020.
In this framework, there are 71 countries that Turkey will receive information from and there are 54 countries to be informed by Turkey in 2020 within the scope of the Agreement. Based on this, it is understood that some countries are willing to give information even if Turkey will not share any information. On the other hand, automatic exchange of information with Switzerland, which is not included in the said list of countries will start as of 2021.
2. The Implementation Process of Information Exchange and Relevant Persons
Financial institutions in Turkey will inform Turkish Revenue Administration of the Ministry of Treasury and Finance about the information on identified accounts and the Turkish Revenue Administration will exchange information with the countries concerned via a secure electronic network. Respectively, the information will be exchanged by the relevant tax administration of the related country (on the basis of reciprocity). Exchange of information between the two countries can be made until the end of September of the following year regarding the status of the account on December 31 and the information collected. Only the information of the resident persons of a country will be exchanged with that country.
The information exchange within the scope of the Agreement comprises the residents in the countries concerned (resident individuals and institutions), as well as some institutions with Turkish residency which are controlled by residents of the concerned country (eg. which generate passive income like interest and dividends or hold assets for this purpose without any financial institution.)
In this regard, it is seen that the automatic exchange of information will have serious effects on both natural persons and legal entities. In this regard, particularly persons and companies that are domiciled in Turkey while having accounts in foreign financial institutions must conduct a thorough analysis of the expected impact of the application of the Agreement.
3. Highlights of the Guideline
Turkey's first automatic exchange of information has realized in 2018, with Norway and Latvia. The Guideline annexed a list of 54 countries that Turkey will share information or will receive information in line with the reciprocity principle, in respect of the information of 21.08.2020.
- Germany, France, Netherlands, Belgium and Austria were not included on the automatic exchange of information calendar of 2020 (the period which includes the information on 2019).
- 107 countries signed the Agreement until today. In this regard, the list of countries for automatic information exchange may change in the coming years.
- Turkey will not exchange information prior to 2019 to any party.
- The automatic exchange of information rules includes financial accounts held in financial institutions in Turkey. The information on immovable assets and some movable assets like vehicles are not in the subject of the Agreement.
- Name and surname, address, country of residence (resident), tax identification number in the country of residence (resident) of the account holder and the persons controlling the institutions (some partners or sometimes managers) and year-end balance of the account and the gross amount of payments include interest paid to the account during the year, dividends, income from the sale of financial assets held in the account will be exchanged.
- Financial accounts within the scope constitute five categories which are deposit accounts, custody accounts, debt and partnership interest benefit, cash value insurance contracts and regular payment contracts (annuities).
- In all account types, the year-end balance of the account is subject to notification, and information regarding the source of account balances (such as pension, rental income) is not within the scope of automatic information exchange.
- As a general rule in Turkey, the information of companies which are resident in Turkey and actively conduct business won't be exchanged by Turkey even if the shareholders are resident in a foreign country. Besides that, financial accounts of Turkish persons in Turkey that are opened for their companies has been established in a foreign country might be within the scope of the Agreement.
- It is not obligatory for the financial institution established before 01.07.2017, to report an account of legal entities providing that the account balance does not exceed USD 250,000. There is no such threshold value for individual accounts. Both individual accounts and corporate accounts opened after 01.07.2017 are within the scope of the exchange of information regardless of the balance.
- The balance or value of the financial accounts within the scope of the agreement on the end of the financial year and the revenue paid to this account during the year (such as interest, dividends, income from the sale of financial assets, etc.) are within the scope of the exchange of information. However, account movements such as real estate lease payments and debt payments that are deposited into a deposit account during the year are not covered by automatic information exchange.
- Accounts which has no account movement for 3 years and accounts which has no contact with the financial institutions, unless the balance exceed USD 1.000, are considered as inactive account and will not be subject to the exchange of information (excluding regular payment contracts -annuity).
- It is not possible to exclude the information of the accounts that meet the criteria for automatic exchange, by using methods such as application, petition, objection, and a lawsuit.
- Written requests concerning lack of consent for transferring some data to a foreign country, within the scope of the Personal Data Protection Law No.6698, cannot prevent automatic exchange of information.
Please click here to reach the full text of the Guideline on the Application of the Automatic Exchange of Financial Account Information in Tax Issues.
Moreover, please click the link to watch the online session on Automatic Exchange of Information organized by The Institute of Internal Auditors - Turkey and joined by Mr.Can Dogrusöz, International Tax Director of Centrum Turkey in early August. Please also click the link to view his article on this subject.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.