Automatic Exchange of Financial Account Information: A Key Step Toward Transparency
Automatic Exchange of Financial Account Information: A Key Step Toward Transparency
Automatic Exchange of Financial Account Information: A Key Step Toward Transparency
The Organization for Economic Cooperation and Development (OECD), the G20, and the European Union (EU) have been actively working towards preventing tax evasion and promoting transparency in tax practices. As part of these efforts, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters was established. This agreement has been signed by all EU member countries and 147 other nations, including Turkey, which joined in 2011. After completing the necessary legislative procedures, the agreement came into force in 2018.
A significant aspect of this agreement is the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information, which was signed by Turkey in 2017 and ratified in 2019. As of May 16, 2023, 120 countries have agreed to this framework. The agreement requires participating countries to automatically share financial account information of residents with each other on an annual basis, ensuring transparency and mutual cooperation.
What Information is Shared Under the Automatic Exchange Agreement?
Under the agreement, financial institutions and certain insurance companies are required to share the following financial account information:
Deposit Accounts
Custody Accounts
Partnership and Debt-related Interests
Cash Value Life Insurance Contracts
Annuity Contracts
This information includes not only account balances but also other related financial details, which are shared with the relevant country of residence.
Why Did Turkey Join the Automatic Exchange Framework?
Turkey’s participation in this agreement is a result of its commitments as a founding member of the OECD and G20, starting from decisions made in 2013. The goal of reducing tax evasion and ensuring the country’s economic development led Turkey to join this international framework. Furthermore, the EU, which is Turkey’s key trading partner, has been adding countries that fail to meet the requirements of such agreements to its Non-Cooperative Tax Jurisdictions list. Countries on this list face various tax and non-tax measures, and their economic relations with EU member states may be severely impacted.
As of February 14, 2023, countries on this list include American Samoa, Anguilla, the Bahamas, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, the US Virgin Islands, the British Virgin Islands, Costa Rica, the Marshall Islands, Russia, the Turks and Caicos Islands, and Vanuatu.
When Did Turkey Start Automatically Sharing Financial Information?
Turkey began its automatic information exchange with Norway and Latvia in 2018. Following the necessary administrative and legal work, Turkey delayed the automatic exchange until later, after intense negotiations with the EU. By 2020, over 100 countries had already started exchanging financial account information under the agreement or through bilateral arrangements. Today, all G20 and OECD member states are exchanging financial information with each other, and Turkey participates in this system as well.
From 2019 onwards, Turkey has shared financial data for each year, ensuring compliance with international obligations. Information is exchanged with the relevant countries by September of the following year.
The Status of Foreign-Owned Companies in Turkey
In general, foreign-owned companies in Turkey engaged in active commercial activities, such as manufacturing or trade, are not subject to automatic information exchange. However, financial accounts opened in Turkey by Turkish citizens who own companies abroad may be subject to reporting.
For example:
A textile manufacturing company, ABC Limited, is based in Turkey. The majority shareholder, Mr. (A), resides in Norway. Since the company is actively trading, no financial information will be shared with Norway regarding the company’s financial accounts in Turkey.
However, if a company established in Norway, NBC, has a bank account in Turkey, the information regarding that account, including the opening date and balance, may be shared with Norway.
Are There Any Notification Thresholds?
For accounts opened before July 1, 2017, financial institutions are not required to report accounts with a balance of less than USD 250,000 as of June 30, 2017, or at the end of any subsequent year. However, individual accounts do not have such a threshold, meaning all such accounts are reportable. Accounts opened after June 30, 2017, regardless of their balance, are automatically included in the reporting system.
Notifications are made in the currency of the account, and it’s important to note that these reports include specific financial details, not account statements.
This framework significantly enhances transparency in financial matters across borders, enabling better monitoring of tax compliance and reducing the chances of tax evasion. It fosters trust among countries and contributes to a global effort to create a fairer tax system.
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