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In today’s globalised economy, mutual assistance in tax matters is essential for countries to maintain sovereignty over the application and enforcement of their laws and to ensure the correct application of tax treaties.
Mutual assistance provisions offer tax authorities a legal framework for co-operating across borders without violating the sovereignty of other countries or the rights of taxpayers, in particular with a view to combating tax avoidance and evasion.
A key element of international co-operation in tax matters is exchange of information.
Overview
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Legal instruments
There are a number of international legal instruments on the basis of which exchanges of information for tax purposes may take place:
Bilateral treaties (Double Taxation Agreements, Tax Information Exchange Agreements)
Multilateral treaties (Convention on Mutual Administrative Assistance)
Domestic law (Procedures for providing information may also be established in domestic law. For instance, some countries permit the provision of information to another country, with certain conditions (e.g. reciprocity and confidentiality of information), even in the absence of an international agreement and solely based on their domestic law provisions).
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In the context of income tax treaties, exchange of information is often based on Article 26 of the OECD Model Convention. Article 26 of the OECD Model Convention provides primarily for the application of three forms:
Forms of exchange of information:
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Exchange of information on request: The competent authority of one state asks for particular information from the competent authority of another contracting state.
Automatic exchange of information: Information transmitted systematically on one or more categories of income (e.g. interest, dividends, royalties, pensions etc.).
Spontaneous exchange of information: Without having received a request, one contracting state provides on its own initiative information that has obtained, for example, during its investigations, and which it supposes to be of interest to the levying of taxes by the other contracting party.
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Other forms of exchange of information:
Simultaneous tax examinations: An arrangement between two or more states to examine simultaneously and independently, each in its own territory.
Tax examinations abroad: In a tax examination abroad, representatives of the competent authority from one state are allowed to be present in the territory of the other state.
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Turkish legal instruments
The legal instruments for exchange of information for tax purposes between Turkey and other countries are the following:
Articles in bilateral double taxation agreements on exchange of information
Bilateral tax information exchange agreements
Convention on Mutual Administrative Assistance
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Turkish domestic legislation
There is no specific provision concerning exchange of information under Turkish domestic tax legislation. However, Turkish Tax Procedure Law No. 213 contains provisions concerning the powers of the Turkish tax administration to collect information and secrecy aspects in tax matters for domestic purposes (Turkish tax procedure law No. 213, Art. 5, 148 ).
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Exchange of information articles in double tax treaties
Exchange of information articles in double tax treaties are generally based on Article 26 of the OECD Model Convention. Article 26 of the OECD Model Convention envisages information exchange to “widest possible extent”.
However, it does not allow “fishing expeditions (speculative requests for information that have no apparent nexus to an open inquiry or investigation).
In this context, before sending a request, requesting state should provide to ‘demonstrate the foreseeably relevance of the information to the request.
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Turkey has signed 81 double taxation agreements including, agreements with member countries of the European Union. 75 of these agreements are currently in force.
Information is exchanged on a bilateral basis between Turkey and other countries in the framework of article on exchange of information that is found in double taxation agreements between Turkey and the other country.
The article on exchange of information in the Turkish double taxation agreements is generally based on Article 26 of OECD Model Convention.
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The form of exchange of information on request is used. However, information is sent from other countries within the scope of automatic and spontaneous exchange of information.
Necessary efforts are being carried out to provide automatic and spontaneous transmittance of information.
Turkish Tax Procedure Law No. 213 contains provisions concerning the powers of the Turkish tax administration to collect information for domestic purposes.
In practice, the same measures can be used in the collection of information for another country.
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Tax Procedure Law No. 213 Giving information Article 148. –
•Public administrations and institutions,
•Taxpayers or other real persons and legal entities who are in relation with the taxpayer
are obliged to give all the information required by the Ministry of Finance or by persons having the power of carrying out fiscal examinations.
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Tax Procedure Law No. 213
Impossibility to refrain from giving information
Article 151. –
Real persons and legal entities who are asked for information may not refrain from giving the said information by setting forth the clauses of special laws regarding secrecy. (Exceptions to this Article, attorney-client privilege, etc.)
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Limitations to the obligation of exchange of information
The exchange of information is mandatory. In connection with the Model Convention the obligation to exchange information is provided by the Article 26 insofar as the taxation under the domestic laws concerned is not contrary to the Convention.
The obligation to exchange information is not limited to information contained in the tax files held by a tax administration. If requested information is not available in the tax files, the requested party must use its information gathering measures to obtain the information from the taxpayer or third parties.
Although the exchange of information is mandatory, the states may decline to provide for information in some situations. In general, grounds for declining a request may include the following.
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A contracting state is not obligated to supply information which is not obtainable under its domestic laws and practices.
Information is deemed to be obtainable in the normal course of administration if it is in the possession of the tax authorities or can be obtained by them in the normal procedure of tax determination, which may include special investigations or special examination of the business accounts kept by the taxpayer or other persons, provided that the tax authorities would make similar investigations or examinations for their own purposes.
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The requested state may decline to comply with a request if the requesting state has not pursued all means to collect the information in its own country,
A state may also decline to comply with a request if providing the information would be contrary to ordre public (transmitting information to another state would result in industrial or business secrets becoming public, or if providing information would lead to discrimination between nationals of the contracting states).
Most of Turkish double taxation agreements restrict taxes subject to exchange of information with those covered only by the Agreements. However, our current Agreement policy tends to include any kind of taxes within the scope of exchange of information.
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Any information received should be treated as confidential.
The Model Agreement provides the information received may be disclosed only to persons or authorities concerned with assessment, collection and enforcement of the taxes covered by the Agreement and the information may be used only for such purposes.
Turkish Tax Procedure Law No. 213 Article 5 stipulates provisions concerning confidentiality for domestic purposes.
These measures are also applied for information received from contracting states under the double taxation agreements.
Confidentiality of information received
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Tax Procedure Law No. 213
Tax Confidentiality Article 5.- Persons within the scope of tax confidentiality Officials in charge of taxation formalities and examinations, Tax Courts, District Administrative Courts and those assigned to the
State Council, Those taking part in the work of commissions instituted in
accordance with fiscal laws, Experts employed in taxation operations.
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Tax Procedure Law No. 213
Tax Confidentiality
Article 5.-
Subject of tax confidentiality: Persons mentioned in the previous slide may not disclose and use for their own benefit or for the benefit of third persons, the secrets with which they have become acquainted during the performance of their duties, regarding the person of the taxpayer or of those in relation with him:
situation of their accounts and transactions, their business, wealth, profession or other particular
which must remain secret.
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Double Taxation Agreements-EU Members
• Germany• Austria• Belgium• Czech Republic• Denmark• Estonia• Finland• France• Netherlands• UK• Spain• Ireland• Italy
• Latvia• Lithuania• Luxembourg• Hungary• Poland• Slovakia• Slovenia• Greece• Sweden• Bulgaria• Portugal• Romania• Malta
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Double Taxation Agreements-Other Countries
• Norway• Korea• Jordan• Saudi Arabia• Tunisia• Pakistan• T.R. of Northern
Cyprus• U.A. Emirates• Malaysia• Morocco• Lebanon• Japan• Kazakhstan• Macedonia• Albania
• Algeria• Mongolia• India• Egypt• PR of China• Turkmenistan• South Africa• Serbia-
Montenegro• Azerbaijan• Uzbekistan• USA• Belarus• Kuwait• Ukraine• Israel
• Russia
• Indonesia
• Ethiopia
• Bahrain
• Qatar
• Croatia
• Moldova
• Singapore
• Kyrgyzstan
• Tajikistan
• Bangladesh
• Syria
• Thailand
• Sudan
• Iran
• Bosnia and Herzegovina
• Philippines
• Canada
• Brazil
• Georgia
• Oman
• Yemen
• New Zealand
• Australia
• Switzerland
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Tax Information Exchange Agreements
• Turkey concluded tax information exchange agreements with Jersey and Bermuda.
• Negotiations are proceedings with several countries so-called tax havens.
• TIEAs essentially require the provisions of tax examination abroad and information exchange only ‘on request’.
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