|Isil Ökten||Burak Erusta|
As of June 3 2014, the Republic of Turkey has been included in the list of jurisdictions that have reached agreements in substance with the US on the terms of Model 1 IGA and have consented to be included on the Treasury and Inland Revenue Service (IRS) list. As a result, since July 1 2014, foreign financial institutions (FFIs) that are resident in, or organised under the laws of, Turkey were considered as Fatca-compliant and were permitted to register on the Fatca registration website by the IRS.
Finally, the Agreement between the Government of the United States of America and the Government of the Republic of Turkey to Improve International Tax Compliance Through Enhanced Exchange of Information was executed between the respective governments in Ankara on July 29 2015, as has been announced by the Turkish Revenue Administration on July 30 2015. The Agreement will need the approval of the Turkish Grand National Assembly to enter into force and to be considered as having the force of law under the Constitution of the Republic of Turkey.
Article 10 (1) of the Agreement states that the Agreement will enter into force between its parties after Turkey notifies the US that the internal approval procedure of Turkey for entry into force of the Agreement is complete.
According to the Memorandum of Understanding, Turkey intends to introduce necessary legislation to have the Agreement enter into force by September 30 2015. Until then the United States Department of the Treasury will continue to treat each Turkish FFI as complying with Fatca requirements. However, in case of any delay for entry into force of the Agreement, upon consultation with Turkey, the United States Department of the Treasury may continue the same application for longer, so long as it assesses that Turkey is likely to be able to send the notice mentioned in article 10 (1) by September 30 2016.
Under the Agreement, Turkish FFIs will identify reportable US accounts under due diligence rules contained in annex I of the Agreement and report specified information about identified US accounts to the Turkish Revenue Administration. Turkey, in turn, will report such information to the IRS on an automatic basis. If the Turkish FFI does not comply with its reporting requirements, it may be deemed to be a non-participating FFI and a 30% withholding tax charge may be applied to certain payments made to it by the US authorities over its US assets. Some Turkish banks have already started to obtain required information and documents from customers in preparation for compliance with Fatca-related regulations.
Although, the Agreement explains the basics for the information exchange for Fatca, the Turkish authorities will need to enact secondary legislation to: provide detailed information on Fatca implementation of Turkish financial institutions; and, to resolve potential conflict with other internal legislations regulating financial institutions such as confidentiality obligations to customers and the situation of accounts that were opened before entry into force of the Agreement.
Isil Ökten and Burak Erusta
© 2021 Euromoney Institutional Investor PLC. For help please see our FAQs.