Erdal Dinçtürk | Deloitte, Partner
The taxation of digital products and service admissions of the non-resident companies in Turkey without a taxable residence have been acquired another dimension after the effectuation of the 464 numbered Tax Procedure Law General Communique dated 1 July 2016.
Value Added Tax Law generally evaluates the taxation within the frame of delivery of goods and services. VAT of the goods that are imported from the non-resident suppliers is declared and paid at the import clearance stage. For the individual consumers who buy goods online within the context of e-commerce (B2C), the customs tax is declared and paid via the distributor company. Therefore VAT declaration and payment of the goods that are purchased from the non-resident suppliers within the scope of e-commerce can already be done in the current taxation system.
The taxation of the digital product and service sales made by the non-resident suppliers to the VAT taxpayers in Turkey (B2B) is done only if the services are benefited in Turkey under reverse charge VAT mechanism. Turkish taxpayer that purchased the service is responsible of paying the reverse charge VAT over the remuneration, and recover it at the same time through offset against input VAT.
Nevertheless, the main handicap is occurred when the digital product and service sales are made to individual consumers (BTC). Legally, the individual consumer that purchased the service in Turkey is also responsible to declare and pay the VAT as responsible party with reverse charge VAT return. However, since millions of people are purchasing digital product and services online in today’s economy, obviously it is not possible to collect VAT (especially by VAT return declarations) thorough reverse charge VAT mechanism by millions of people in practice.
In this context, the sales of digital product types of the non-resident international companies in Turkey directly to individual consumers are as follows;
The applications downloaded into computers and smart phones,
The online games, and contexts purchases for the online games,
The online bet games,
The online tv shows, films, radio broadcasts,
The online music,
The online educational trainings,
The online visuals
If we review these purchased contexts, most of them can be purchased from a taxpayer in Turkey either. As a result, if we assume that the VAT rate is 18% in general, foreign suppliers that make sales via internet without being a tax resident in Turkey are holding a 18% cost advantage than the ones that are resident in Turkey.
The obligation of edification by the 464 numbered Tax Procedure Law General Communique aims to record the context and service sales that are off the record.
However, although the collection of VAT from the digital context and service sales seems possible theoretically with respect to the current VAT law, it is practically impossible. Therefore, a revision should be made in the legislation.
How is the practice in European Union?
If we review the European Union legislations, the VAT declaration and payment of the service sales via online are explained in detail. First of all, according to the European Union VAT directives, foreign companies that do not have a residence in the European Union can be tax resident with respect to VAT only.
According to 2006/112/EC numbered decision, the communication services, radio and television broadcasts and online services that are rendered in any European Union country require VAT residence in the country where the service is purchased. These taxpayers are declaring their monthly income and are paying the calculated VAT levied on this income to the related country.
Despite, the European Union works on to provide these kind of global companies to establish a residence in any European Union country and declare the acquired income from all the EU countries in the selected EU country (mini one stop shop).
The purpose of this work is to increase number of the taxpayer international companies that are only 20% of those companies yet providing online context and service sales. The way that EU countries are requesting the income information regarding the sales to the individual consumers from the banks and intermediary firms is not possible with respect to confidentiality of personal information legislation. As a result, it is researched to find new ways of simplifying the tax declaration and ways of collecting more tax.
What is proposed to Solve This Issue?
According to 454 numbered Tax Procedure Law General Communique; starting from 1.1.2016, since the income that is gained by the international firms in Turkey via the sales of context and services online will be known, the VAT collection from the related income will be easier.
However, in order to perform this collection, either a VAT registration should be provided for the international companies that make sales in line with the EU directives or a VAT reverse charge payment obligation should be brought to the entities (e.g. banks) that mediate the payment to abroad.