Turkey on tax evasion grey list

Turkey has been on the grey list of European Union non-cooperative tax jurisdictions since 2017, a situation that undermines its credibility in fiscal transparency.

By the end of last year, Turkey should have taken two additional steps to avoid being blacklisted: implementing the Automatic Exchange of Information (AEOI) and becoming a member of the OECD Global Forum with a sufficient rating. Although Turkey has not fully fulfilled these requirements, it was granted more time to fulfil its commitments, according to an EU document released on Tuesday.

Turkey is characterised as “Partially Compliant” when it comes to having a sufficient rating with OECD Global Forum, a peer review mechanism to assess jurisdictions’ compliance with international standards of transparency.

Among 119 jurisdictions reviewed by the OECD, only four (Turkey, Trinidad and Tobago and the Caribbean enclaves of Anguilla and Sint Maarten) are rated as non-compliant, or partially compliant. The other 115 countries are either (provisionally) largely compliant or compliant.

Turkey’s rating is based on the first round of reviews and a second round is due in 2020. Turkey should obtain a provisional largely compliant rating in this round to avoid being blacklisted by the EU.

Regarding the AEOI, which is a reporting standard for bank accounts globally between tax authorities, the situation is more ambiguous. While Turkey has completed the necessary technical preparations, it has failed to start information sharing effectively with EU member states. According to the terms of a pre-announced strategy on tax-havens, the EU should have blacklisted Turkey at the start of this year. However, the EU has extended the deadline for Ankara to meet tax transparency requirements in an attempt to avoid another political spat with the government or weaken its credibility in fighting evasion.

Although Turkey began implementing the AEOI in 2018, it had not effectively started sharing information by the end of last year, the deadline set by the EU. Turkey made one exchange of information in 2018 and two in 2019. But in the first 11 months of last year, the other 93 jurisdictions completed 6,098 bilateral exchanges, which included detailed information on the financial accounts held in the sending jurisdictions by tax residents of their partner jurisdictions.

Turkey has intentionally loosened its framework regarding fiscal transparency in recent years. It has made frequent attempts to repatriate assets and to deregulate inward capital transfers as a part of a financial relief plan to help its cash-strapped economy during a severe and persistent economic downturn. Turkey’s reluctance to fully implement the AEOI could be partially attributed to this goal.

Turkish citizens can gain immunity from backward tax investigations by paying a 1-percent tax on repatriated foreign assets. After 2020, when the scheme is due to expire, one might expect Turkey to participate more actively in the AEOI. But the scheme has been extended for another six months, until June 2020, which intensifies concerns regarding Turkey’s compliance.

Another problem regarding compliance is the potential effect on Turkish citizens receiving social security benefits in Europe. Should European authorities detect unreported assets placed in Turkey, Turkish citizens receiving benefits in Europe may face retroactive refund claims. Turkey’s pro-government media has actively encouraged citizens residing in Europe to hide their assets in line with the Turkish Personal Data Protection Law enacted in 2016.

Turkey has the necessary legal and technical infrastructure to start the AEOI. But despite facing the threat of being blacklisted by the EU, it is giving low priority to financial management, fiscal transparency and information sharing in order to protect citizens illegally obtaining welfare benefits and to implement its asset repatriation schemes, which stand to provide temporary financial relief for its ailing economy.

Switzerland recently excluded Turkey from an expansion of its own AEOI scheme. In December, the Swiss parliament announced a framework for implementing the measure with some additional countries for 2020 and 2021. The decision to exclude Turkey was grounded in politics - several members of the Swiss parliament stressed that Turkey had departed from democratic values and its military offensive in Syria had breached international law. One parliamentarian said that starting the AEOI with Turkey would send out the wrong message; namely that Switzerland approved of the political situation in the country.

Turkey has another problem with fighting tax evasion – it has no official list of tax havens. Turkey`s corporate tax code defines a tax haven as a country or a jurisdiction that offers favourable tax conditions to individuals and companies to attract them to register their businesses. However, no such list has been announced by the presidency, hindering implementation of measures to tackle tax evasion and provide fiscal transparency.


© Ahval English

The views expressed in this column are the author’s and do not necessarily reflect those of Ahval.