Recently, the topic of automatic exchange of information has come to the forefront and affects millions of expatriates. This significant change means that people with accounts in countries other than their country of residence will be subject to taxation in the relevant country.
What Is the Automatic Exchange of Information?
By definition, the automatic exchange of information means that the account details of a person who is resident in one country but holds accounts in other countries are shared annually by the tax authorities of those other countries with the country of residence. The agreement was signed among European Union and G20 countries, and Turkey has joined the list of countries that will both provide and receive information. The system was introduced to combat tax evasion, prevent money laundering and other illicit financial flows, and to increase transparency in taxation. It is already in use in 107 countries, with the primary aim of curbing tax avoidance. Turkey was one of the later countries to join the agreement, but its membership now enables cross-border sharing of account information.
People are understandably curious about which details will be exchanged under the automatic exchange system. Shared information will include address, full name, date and place of birth, tax identification number, account details, account balances, and interest and dividend income. Payments made to the account during the year—meaning individual account transactions—will not be part of the automatic exchange. In addition to deposit accounts, custodial accounts will be reported, as well as interests arising from shareholding and debt relationships, and cash-value insurance contracts and arrangements intended to provide periodic payments.
What Will the Automatic Information System Deliver?
In practical terms, the automatic information system will electronically transmit financial account information held in foreign countries to the account holder’s country of residence on an annual, reciprocal, and automated basis. Since Turkey is a party to the agreement, it will exchange account information with other signatory countries. Economic relationships will increasingly cross borders, and new tax reporting and enforcement measures will follow. Under the agreement, participating countries will have access, reciprocally, to financial account information for residents of the relevant jurisdictions.
Because the system covers European Union countries in particular, Turkish citizens living abroad should pay close attention. Individuals who have a registered residence in Turkey or who spend more than six months in Turkey in a calendar year are considered tax residents of Turkey. Consequently, investments and accounts in Turkey will be evaluated under the exchange system and may be subject to taxation. To avoid problems with financial accounts, these details must be shared accurately among the participating countries.
Expenses and Investments Will Be Reported
Under the automatic exchange system, rental income or proceeds from property held abroad will be reflected in account information and may create tax obligations. Expatriates should be mindful of currency fluctuations when investing in Turkey, as these investments can now be subject to taxation through account reporting. Contact information is also crucial for the system’s operation. If current mailing or correspondence addresses are not up to date in the system, authorities will consider that notifications have been made and may deliver notices to addresses the individuals no longer use.
Because the system relies on current residence information, avoidance is not feasible. Continuity of the system will be ensured based on up-to-date residency records. Both business and personal accounts fall within the scope of reporting, and activity in those accounts will be shared with participating countries so that taxation can be applied under the relevant rules. The assessment period between September 2020 and September 2021 is particularly important for these evaluations.