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 willl 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 wihout 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.