In order to prevent tax evasion and ensure financial transparency, the Turkish Revenue Administration under the Ministry of Treasury and Finance issued General Communiqué No. 529 on Tax Procedure Law (the “Communiqué”) imposing an obligation to make ultimate beneficial ownership declaration on a wide range of entities, notably, corporate taxpayers. The Communiqué was published in the Official Gazette on July 13, 2021, and entered into force the same day.
The deadline for initial declarations was set as August 31, 2021. Although the due date has passed, the Communiqué represents the ultimate beneficial ownership declaration as an obligation to be performed regularly. In this regard, by the effective date, obliged parties, including corporate taxpayers, have become required to submit their ultimate beneficial ownership information annexed to their provisional tax returns and annual corporate tax returns. The obliged parties except for corporate taxpayers should declare their ultimate beneficial ownership status by August 31 each year.
Who Should Make Declaration as to Ultimate Beneficial Ownership and Who Is Ultimate Beneficial Owner?
All corporate taxpayers and, therefore, companies are subject to the obligation to declare ultimate beneficial ownership status. Likewise, persons with the highest shareholding in ordinary partnerships and the directors, trustees, or representatives of trusts and similar entities having headquarters in Turkey or established in a foreign country with an executive residing in Turkey should also make ultimate beneficial ownership declaration.
The Communiqué defines the ultimate beneficial owner as real person(s) who ultimately control or have the ultimate influence over a legal or non-legal entity.
For companies, the ultimate beneficial owner implies:
- Real persons holding more than 25% shares of that company,
- If ultimate beneficial ownership of such person is suspicious or in the event that there is no real person shareholder with such share, real persons having the ultimate control of the company (in group companies, shareholders of the holding company may be evaluated within this scope),
- If the ultimate beneficial owner happens not to be determined as above, the person(s) with the highest executive power of the company .
For non-legal entities such as unincorporated business partnerships, ultimate beneficial owner refers to:
- Real persons(s) who ultimately control the entity,
- If there is no real person with ultimate control, real person(s) with the highest executive powers of the entity should be declared as the ultimate beneficial owner.
For trusts and similar entities, founders, trustees, directors, auditors, or beneficiaries, or those who have influence over these entities will be considered as the ultimate beneficial owners.
Additionally, persons and institutions counted among obliged parties under the Law on the Prevention of Laundering Proceeds of Crime No. 5549 and their branches, agencies, representatives, commercial agents, and similar units should notify the Revenue Administration, upon request, of the ultimate beneficial ownership status of the transactions executed by their customers. This obligation also applies to the branches, agencies, representatives, commercial agents, and similar units of the obliged parties having their headquarters abroad.
What Information does the Declaration Include about the Ultimate Beneficial Owner?
The declaration of ultimate beneficial ownership consists of the ultimate beneficial owner’s name, surname, citizenship, identity number, address, telephone, fax, and e-mail information and, if any, explanations regarding why that person is declared as the ultimate beneficial owner.
Declarations should be made via the Internet Tax Office by filling in the “declaration form for ultimate beneficial owner”. Submission of physical declaration forms (either by hand or by post) will not be valid. Forms may be sent in the relevant period through certified public accountants with a brokerage and liability agreement concluded or through sworn-in certified public accountants with an income or corporate tax return certification agreement (full certification agreement).
Who can Access the Information on Ultimate Beneficial Ownership?
Whereas information as to the ultimate beneficial ownership is not accessible by the public, the Revenue Administration may communicate it with other public institutions and organizations.
What are the Sanctions of Non-Compliance?
Once detected, those who declare their ultimate beneficial owner incompletely or incorrectly despite their such obligation under the Communiqué will have to resubmit their declarations by correcting the same accordingly.
Moreover, sanctions may be imposed on those who declare their ultimate beneficial owner in an incomplete or misleading manner or who fail to declare at all, according to the relevant provisions of the Tax Procedure Law No. 213. Although there is no sanction particular for the ultimate beneficial ownership declaration, we expect a special irregularity penalty ranging between TRY 650.- and TRY 2,500.- for 2021 will be applied to the relevant taxpayers pursuant to the Repeated Article 355 of the Tax Procedure Law. The penalty for first-class merchants, including companies, will be TRY 2,500.- for 2021. Penalties will be updated annually as per the reevaluation rate. The penalty will be implied by increasing one-fold in case an obliged party fails to fulfill their obligation of declaration within the time limit granted to them after the initial special irregularity penalty.
Conclusion and Notes
While obligations regarding the identification of the ultimate beneficial owner are not new to our legal system, the Communiqué, for the first time, introduces the obligation for taxpayers to declare their ultimate beneficial owners. In this framework, we advise the entities obliged to declare their ultimate beneficial owners as per the Communiqué fulfill their obligations within the above-mentioned periods and dates.
We would also like to note that obliged parties should maintain their declarations up to date. Accordingly, in case of any change in the information they submitted, or a new entity is established, they should also notify the Revenue Administration of the situation within one month following the date of occurrence.
Special thanks to Latif Aktaş for his contributions.