Although the agreement was signed four months ago and Turkey has completed all the requirements, Germany has delayed implementation as it overcomes the difficulties faced by those who will be affected by enforcement of the new regulations. According to sources at the Ministry of Finance, when the agreement takes effect the double taxation of a variety of profits and assets of businesses under different categories will be prevented. Current regulations require Turkish businesses operating in Germany to pay taxes.
The recent announcement released by the Revenues Administration (GİB) points to the fact that Turkey has fulfilled all the requirements of the agreement, which was signed in Berlin on Sept. 19, 2011 and approved by the cabinet on Jan. 16, 2012. GİB also notes that documentation regarding the approval of the agreement has not been received from the German side and an exchange of notes is required in order for the agreement to be diplomatically recognized.
When the agreement comes into force, both countries will cooperate to track down overdue taxes and collect payment. Organization for Economic Cooperation and Development (OECD) standards will also be used to manage the information exchange process in order to ensure it is as effective as possible.
About 3.5 million Turks living in Turkey are waiting for the agreement to take effect, as it will exempt retirees who worked in Germany and were paid less than 10,000 euros annually from paying tax. However, a 10 percent tax will be levied on those retirees whose earnings were either equal to or more than 10,000 euros.
The 1985 deal, which prevented the double taxation of both countries’ citizens whether they are in Turkey or in Germany, was unilaterally scrapped by Germany on July 21, 2009, even though the original expiration date was set for 2011. Germany defended the cancellation of the deal by claiming that it was mainly due to “altered” economic relations between the two countries. Turkey has been in discussions with the German authorities since then to try to convince them to sign another agreement. The two countries have previously held four rounds of talks where they failed to reconcile their differences. The exemption covers more than 90 percent of Turks who retired from jobs in Germany but are currently living in Turkey. Germany wants to levy taxes on its citizens living in Turkey, which refuses to implement the policy, claiming that the country does not tax pensions and would therefore be unable to implement a reciprocal action for Germans who worked in Turkey and German retirees living in Turkey. Germany’s tax on pensions starts at a rate of 12 percent.
