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21.07.2021 | KPMG Law Insights

Steuerstrafrecht – Update on the automatic exchange of information with Turkey: The clock is ticking – Turkey is now reporting tax data to Germany after all

Update on the Automatic Exchange of Information with Turkey: The clock is ticking – Turkey is now reporting tax data to Germany after all

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I. New developments

In August 2020, the Turkish Ministry of Finance had published an “information manual” on the automatic exchange of tax data (“AEOI”) on its website, listing the countries to which Turkey transfers data. Germany, among others, was expressly excluded from the transmission at that time.

This has now changed; the relevant passage, which excluded Germany, among others, has been deleted. Based on Presidential Decree No. 4025 dated May 31, 2021, the Ministry of Finance of Turkey has updated the above mentioned information manual. In the updated list of states to which Turkey will provide tax data in 2021, it has now included Germany. This means that the “grace period” for German residents with accounts, etc. in Turkey will expire.

 

II. Background

As a result of the above-mentioned presidential decree and the updated information manual on AEOI, information is thus also exchanged for customers of Turkish financial institutions (banks and insurance companies) domiciled in Germany.

Accordingly, Turkish financial institutions are required to report information on accounts, their holders, account balances, and income such as interest, dividends, capital gains, and payouts from endowment (life) insurance and pension contracts to the Turkish tax authorities.

Similarly, under certain conditions, Turkish financial institutions are obliged to report the above information on company accounts to the states in which their shareholders are domiciled. This applies, for example, to Turkish companies that predominantly do not engage in active economic activities (e.g. production or trade) or to companies domiciled abroad with accounts in Turkey.

 

III. exchange of tax data

The Turkish tax authorities forward this tax data from the Turkish financial institutions to the German tax authorities, which then check whether the foreign income has been declared for tax purposes. If this is not the case, there is a charge of tax evasion. Even though the (automatic) reports only include income and account balances from 2019, this information also allows conclusions to be drawn about corresponding account balances and income from previous years. In case of doubt, the tax office may estimate income from previous years.

In principle, the exchange of information between the states will take place by September 30 of the respective following year, i.e. between Turkey and Germany the reporting of tax data will thus take place for the first time by September 30, 2021.

 

IV. What can be done?

First, the following should be noted:

  1. If the German tax authorities become aware that income from sources in Turkey has not been declared for tax purposes in Germany, or has been declared incorrectly, they will regularly assume that there has been deliberate tax evasion. This can be punished by a fine or imprisonment of up to five years, in serious cases from six months to ten years. Special attention should also be paid to the topic of gifts and inheritance. Anyone who gives away or inherits assets that have not been declared for tax purposes leaves their children a difficult inheritance, as it is contaminated for tax purposes. Whoever accepts such an inheritance and perpetuates tax misconduct of the testator makes himself liable to prosecution. The borderline to a serious case of tax evasion is often quickly reached in these cases.
  2. The risk of discovery of tax evasion always exists. Even before the automatic exchange of information, tax evasion was detected, investigated and punished.

Now that Turkey also automatically exchanges tax data with Germany, “the clock is ticking”. The time until the exchange should urgently be used to clarify and bring about the possibilities and formal requirements for a voluntary disclosure that exempts the company from punishment. If a voluntary disclosure is filed in time and effectively, one remains free of punishment. This also means that no entry is made in the Federal Central Register or in a police certificate of good conduct. This is particularly important for professions where a certificate of good conduct must be presented or a “clean slate” is required for admission (there may be a threat of a ban from the profession). Likewise, a “clean slate” is required for naturalization. The same applies to tradespeople who would be considered unreliable if convicted.

Previous experience with Switzerland, Austria and Liechtenstein has shown that it often takes considerable time to compile the necessary information and (bank) documents for an effective voluntary disclosure. The commencement of reporting to Germany only in 2021 may be a last chance to still file a penalty-exempt voluntary disclosure in time. This is because a voluntary disclosure requires, among other things, that the tax offense has not yet been discovered. If you want to be on the safe side here, you should definitely file a voluntary disclosure before the exchange of information has taken place. After that, it may be too late to file a voluntary disclosure in order to avoid prosecution.

We have many years of experience with the disclosure of cross-border facts and are available to provide professional advice on voluntary disclosures that exempt from punishment.

We do not charge a fee for a non-binding initial consultation.

Feel free to contact us if you have any questions on this topic.

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