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 emerged. This convention has been signed by 136 countries as of today, including countries such as Switzerland, Norway, Brazil, and India, as well as the EU member states. The Convention was signed by Turkey in 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 ratified on 21.12.2019. As per 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 competent authority is the Turkish Revenue Administration under the Ministry of Treasury and Finance under the scope of the Agreement.
In this context, Turkish Revenue Administration has published the "Guideline on Application of Automatic Exchange of Financial Account Information in Tax Issues" (the “Guideline”) on its official website, aiming to explain the standard which was created by the OECD in 2014.
The highlights of the Guideline are briefly explained below:
1. What are the reasons of exchanging information?
In order to provide tax transparency at the international level, it is agreed that bank information will not be kept confidential around the world. All countries, which are parties to the Convention, aim to minimize tax evasion by acting in collaboration with each other.
2. With which countries information will be exchanged?
Turkey's first automatic exchange of information began with Norway and Latvia in 2018. 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). The automatic information exchange procedure will take some time to include all countries that are party to the contract. The current list can be followed from the link below.
3. How will the system work?
Financial institutions in Turkey will inform the 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 concerned countries 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 any two countries can be made until the end of September of the following year regarding the status of any account on December 31, and the information collected. Only the information of the resident persons of a country will be exchanged with that country.
4. Whose information will be subject to change?
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 (e.g. which generate passive income like interest and dividends or hold assets for this purpose without any financial institution.)
5. Which organizations will be notified?
There are 4 types of financial institutions:
1- Deposit organizations (generally banks)
2- Custodian institutions (custodian banks, etc.)
3- Investment institutions (such as investment banks and funds)
4- Certain insurance companies
However; public institutions and international organizations are not included under this scope.
6. Is there a limitation for notifications?
It is not obligatory for the financial institutions, established before 01.07.2017, to report an account of legal entities provided that the account balance does not exceed USD 250,000,00.-. There is no such threshold value for individual accounts. Both individual accounts and corporate accounts opened after 01.07.2017 are included under the scope of the exchange of information regardless of their balance.
7. Are inactive accounts also included under the scope?
Accounts which do not have any account activity for 3 years, and accounts which have no contact with the financial institutions - unless the balance exceeds USD 1.000,00. - are considered as inactive accounts and will not be subject to the exchange of information (excluding regular payment contracts -annuity).
8. What kinds of information will be exchanged?
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.
9. Which accounts are considered financial accounts?
Financial accounts, falling under the said scope, include five categories, namely;
- deposit accounts,
- custody accounts,
- debt and partnership interest benefit,
- cash value insurance contracts
- regular payment contracts (annuities).
10. For what purpose may such information to be exchanged be used?
The information to be exchanged may be used for tax purposes.
11. With which institutions will such information be exchanged?
Automatic exchange of information will take place between tax administrations on a reciprocity basis through the transmission mechanism created by the OECD. A limited share will be made only to the country of residence (resident).
12. Is the Law on Protection of Personal Data violated by automatic information exchange?
Written requests concerning lack of consent for transferring some data to a foreign country, within the scope of the Law nr.6698 on Protection of Personal Data, may not prevent automatic exchange of information.
Public Institution’s replications to applications stated that; “Regarding Automatic Exchange of Financial Account Information, the Multilateral Competent Authority Agreement has been signed, and the agreement covers only financial accounts, and the transactions made are in compliance with the applicable regulations.”
