TAX NEWS NO: 2016/9
August 26, 2016
Recent Changes in Turkish Transfer Pricing Landscape.
A number of significant changes have been made in Article 13 of the Turkish Corporate Tax Law governing “disguised profit distribution through transfer pricing”, which have come into effect on August 9th, 2016. The multifaceted changes will have important consequences on the Turkish transfer pricing landscape. The most important aspects of the changes introduced can be concisely summarized as follows:
Threshold on relatedness: According to the changes introduced, in cases in which relatedness arises through direct or indirect ownership there must exist at least 10% ownership, voting rights, or dividend rights for a consideration of disguised income distribution. The Council of Ministers is authorized to modify this ratio from 1% to 25% or completely remove this condition, in the future.
Explicit Recognition of Transactional Profit Methods: Transactional profit methods (transactional net margin method and profits split) were already in use in Turkish transfer pricing practice per guidance provided by General Communiqué No:1 on transfer pricing. With the most recent changes introduced; the use of such methods, in addition to transactional methods, are explicitly added to Article 13 of the Corporate Tax Law governing “disguised profit distribution through transfer pricing”.
On Advance Pricing Agreements (“APAs”): The method determined under the original agreement may be applied to past open fiscal years provided that the regret filing clauses of the tax procedural law are applicable to the case, and that the conditions under which the APA was signed are also applicable to the past years. In addition, the Council of Ministers is authorized to modify the term limit for APAs from 3 years to 5 years in the future. The current limit is 3 years per existing regulations.
(Partial) Penalty Protection: Provided that transfer pricing documentation requirements are met in full and on time, the penalty on under paid or late paid tax due to disguised profit distribution will be imposed with a 50% reduction, except in cases where the underpayment arises from acts described in Article 359 of the tax procedural law (pertaining to tax evasion provisions).
Procedures for Mutual Exchange of Information: With the recent changes in effect from August 9th, the authority of the Council of Ministers has been extended. Accordingly, the Council of Ministers has been authorized to include the obligation of providing of information about the operations of cross-border related parties outside Turkey within the scope of transfer pricing documentation obligations and also to determine the procedures for mutual exchange of such information with the Tax Administrations of other countries in accordance with the international agreements.
Dr. Özgür Toros (İstanbul)
Deloitte Turkey, Partner
G. Hülya Yılmaz (İstanbul)
Deloitte Turkey, Partner
Gressi Benveniste (İstanbul)
Deloitte Turkey, Director
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