Assoc. Prof. Dr. Leyla Ateş, Istanbul Kemerburgaz University Law School
The capacity of tax administrations to enforce national tax laws pertaining to limited liable taxpayers or full liable taxpayers with income from abroad goes beyond national borders. Many countries’ tax administrations are equipped with broad powers to ensure access to tax information by means of various regulations. The Turkish tax administration is also among these administrations. However, the tax administrations lose those powers in the case of cross-border labor, assets or transactions as the information they want to access is not directly available to them. Governments must contend with legal and practical limits on their powers over foreign actors who will provide the information. Therefore national tax administrations must cooperate with administrators from other countries and work to build transnational institutions and networks that give them capacity to access cross-border tax information. Exchange of information has been a key aspect in such co-operation.
Exchange of information upon request, spontaneous exchange of information and automatic exchange of information are the three main forms of information exchange. Exchange of information upon request was the dominant form in cross-border tax co-operation until 2009. However, this form allows only requests about specific taxpayers. The requesting governments are required to identify taxpayers by name and explain why they have reason to suspect there is a need for information about that taxpayer’s affairs. Because of such limitations, most countries recognized that exchange of information upon request represented a relatively low level of administrative cooperation among tax authorities. Since 2009, many governments and civil society organizations have called for automatic exchange of tax information as the primary information exchange form.
The United States enacted a national law in 2010 commonly known as the Foreign Account Tax Compliance Act or FATCA. FATCA requires foreign financial institutions to automatically report financial information about accounts held by specified United States persons or be subject to a punitive 30-percent withholding tax. Following the enactment of FATCA, the United States government has started to negotiate and sign intergovernmental agreements based on existing double tax treaties or tax information exchange agreements to implement FATCA. FATCA fueled the G20, an international forum for the governments and central bank governors from 20 major economies. The G20 Leaders committed to automatic exchange of information as the new global tax standard and announced their full support for the OECD work on this subject on 6 September 2013. The OECD prepared the “Standard for Automatic Exchange of Financial Account Information” or the Standard which is built on the FATCA intergovernmental agreement to maximize efficiency and minimize costs and released the full version of the Standard on 21 July 2014.
As a member of G20 and the OECD, the Turkish government has expressed its political will for international tax co-operation through the exchange of information in several fora. In fact, Turkey and the other 88 member jurisdictions of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes committed to implement the Standard and to start exchange of financial account information on an automatic basis as of 2017 or 2018 at the Berlin Conference on 28-29 October 2014. Turkey is among the countries giving the date of 2018. Besides, Turkey signed the FATCA IGA with the United States on 29 July 2014 and approved it on 24 February 2016. In order to put this political will into practice, the Turkish parliament added the new Article 152A to the Tax Procedure Code on 11 June 2013 to clearly authorize the Turkish Revenue Administration and tax inspectors to “gather” information according to the exchange of information provisions under existing international agreements without any limitation of the scope of the Tax Procedure Code provided in Article 1. On the other hand, there has not been any clear domestic legal basis for “exchanging” the information so collected. This lack of clear legal basis carries the risk of making exchange of information practice unlawful. Nonetheless, the new Tax Procedure Code Draft Proposal includes such a provision in Article 9. In our opinion, Article 121 equivalent to extant Article 152A and Article 9 in the Draft Proposal would be an adequate legal base for the exchange of information upon request but not sufficient for the automatic exchange of information. The legality principle of taxation in Article 73 of the 1982 Turkish Constitution requires the translation of reporting and due diligence rules into domestic law. While the Draft Proposal suggests a special irregularity fine for financial institutions in case of non-compliance with the collection and reporting requirements, it does not contain the reporting and due diligence rules for exchanging financial account information automatically.