TAX NEWS

NO: 2009/1

Subject: Deadline for Preparation of Annual Transfer Pricing Documentation Reports and Filing Requirement of the Form Regarding Transfer Pricing, Controlled Foreign Companies (CFCs) and Thin Capitalization

1. Deadline for Preparation of Annual Transfer Pricing Documentation Reports

The obligations of corporate taxpayers with respect to preparation of annual transfer pricing documentation reports (“TP Report”) based on Article 13 of Corporate Tax Law, General Communiqué No. 1 on disguised profit distribution through transfer pricing and Decree no. 2007/12888 governing transfer pricing are summarized in the Table, below:

Those corporate taxpayers that have a special accounting period ending in 2008 (e.g: those with special accounting period ending on 31 March 2008, 30 June 2008, 30 September 2008, etc.) and that have those kinds of related party transactions as summarized in the Table above, which must be included in / analyzed through annual TP report are obliged to prepare annual TP reports by the deadline of submission of their corporate tax returns for their particular special accounting period concerned.

Accordingly, corporate taxpayers that are required to prepare annual transfer pricing documentation report each year must maintain these reports within the period of statute of limitations so as to present them to their tax office, the Turkish Revenue Authority, tax inspectors and officials, as applicable upon any official request from the Tax Authorities. It should be noted that annual transfer pricing documentation reports do not have to be submitted to tax office together with corporation tax returns.

2. Obligation to Submit the Form Regarding Transfer Pricing, CFCs and Thin Capitalization (“Appendix 2”) Together with Corporate Tax Return

According to the Section “7.1 – Annual Documentation” in General Communiqué No. 1 on disguised profit distribution through transfer pricing (“TP General Communiqué No. 1”) and Transfer Pricing Circular No.1 dated 24 April 2008, all corporate taxpayers (including those operating in Turkish FTZs) are required to file a Form Related To Transfer Pricing, CFCs and Thin Capitalization (namely, “Appendix 2 of the TP General Communiqué No. 1” or “Appendix 2” in short) together with their corporate tax returns. “Appendix 2” must include information regarding transactions with related parties during the accounting period (transfer pricing related transactions) as well as the information about foreign participations and loans obtained from related parties so as to determine Controlled Foreign Companies and assess the status of thin capitalization.

Like corporate taxpayers with calendar year - accounting period, those corporate taxpayers that have a special accounting period are also required to complete and submit Appendix 2 to their tax office every year together with their corporate tax returns.

3. Obligations To Submit Appendix 2 and Prepare Annual TP Report for the Year 2008 and Special Accounting Periods Ending in 2008 (on a comparative basis)

Tax Status	Submission Requirement for Appendix 2 to the tax office	Required Scope for the TP Report
Corporate Taxpayers registered with the LTTO	Compulsory	- Domestic Related Party Transactions, - Cross-border Related Party Transactions, - Transactions with branch in Turkish FTZ, - Transactions with Related Parties in Turkish FTZs
Other Corporate Taxpayers	Compulsory	- Cross-border Related Party Transactions, - Transactions with branch in Turkish FTZ, - Transactions with Related Parties in Turkish FTZs
Companies established and operating in Turkish FTZs and having both domestic and crosss-border related party transactions (regardless of whether they benefit from provisional corporate tax exemption based on their operation licenses)	Compulsory	- Transactions with domestic related parties (i.e. the related parties within Turkey), (Cross-border related party transactions are not within the Scope of the TP Report in the case of companies operating in Turkish FTZs, however their cross border related party transactions must be declared in Appendix 2 to be filed together with the corporate tax return)
FTZ Branch of a Company in Turkey	The Turkish company having a branch in Turkish FTZ is required to declare its transactions with FTZ branch in Appendix 2.	FTZ branch itself does not have to prepare a TP report however, the Turkish company having FTZ branch is required to include its transactions with the FTZ branch in its TP Report.
Income Taxpayers	No obligation.	No obligation.

 
4. Our Recommendations for Preparation of 2008 TP Reports

4.1. Identification/Determination of All Related Party Transactions and Completion/Filing of Appendix 2

Corporate taxpayers that have an accounting period on a calendar year basis and that have had related party transactions within the scope of annual TP documentation report during 2008 must prepare their TP documentation reports by April 25, 2009. In order to start the documentation of the related party transactions for the year 2008, related party transactions should be identified by their types (e.g. sales of goods, purchase of services, cost sharing, interest payment on loan, rent etc.), their volumes as well as by type of transfer pricing method (determined/tested based on the documentation studies made for the year 2007 and/or the global transfer pricing policies, as applicable). The necessary analyses must be made in order to test the best transfer pricing method selection and if necessary the revisions/updates must be made for 2008. Depending on the results of the economic analysis, the completion of Appendix 2 must be finalized by the deadline of submission of corporate tax return (25 April 2009 with respect to the year 2008).

4.2. Minimum Technical Documentation Standards to be Considered/Applied in Preparation of Annual TP Documentation Report

As per our technical reviews of 2007 transfer pricing documentation reports prepared by corporate taxpayers themselves, we have observed that there are no transfer pricing analyses (economic analyses) in most of the self-prepared documentation reports as required by General Communiqué No. 1 on Disguised Profit Distribution through Transfer Pricing (TP General Communiqué No. 1) although an economic analysis is the key to the determination of an arm’s length price/profit range. Economic analyses should be performed and documented with sufficient supporting data based on numerical and objective facts rather than on non-numerical and subjective arguments. According to the relevant provisions of the TP General Communiqué No. 1 (as referenced below), we would recommend that those parts of the TP documentation reports (both the 2007 TP reports that must have already been prepared and the reports to be prepared for 2008 and the following years) related to “Transfer Pricing Analyses” should meet the following minimum technical standards outlined below so that the related party transactions can be properly proved by corporate taxpayers to be at arm’s length in accordance with the relevant Turkish TP legislation, which is, in principle, in line with the globally accepted OECD (the Organization for Economic Co-operation and Development) Transfer Pricing Guidelines.

Since it does take considerable time and effort to conduct the economic analyses that can meet and satisfy the above-mentioned minimum technical standards as per the relevant provisions of the TP General Communiqué No. 1 which is, in principle, in line with the Transfer Pricing Guidelines issued by the OECD for Multinational Enterprises and Tax Administrations, we suggest that all corporate taxpayers who are required to prepare transfer pricing documentation report for 2008 but not yet started to work, initiate the start of the economic analyses at their earliest convenience. This is very important to ensure the harmony between Appendix 2 which is due to be submitted by 25 April 2009 and the TP documentation reports and also to properly comply with the annual TP documentation obligations on a timely basis.

Please do not hesitate to contact us should you need any further information and/or support about the annual TP documentation obligations.

Yours faithfully,

Deloitte Turkey.

Sirkülerlerimizde yer alan bilgiler belli bir konunun veya konularýn çok geniþ kapsamlý bir þekilde ele alýnmasýndan ziyade genel çerçevede bilgi vermek ve yorum yapmak amacýný taþýmaktadýr. Bu sirkülerler ile amacýmýz muhasebe, vergi, yatýrým, danýþmanlýk alanlarýnda veya diðer türlü profesyonel baðlamda tavsiye veya hizmet sunmak deðildir. Bilgileri kiþisel finansal veya ticari kararlarýnýzda yegane dayanak olarak kullanmaktan ziyade, konusuna hakim profesyonel bir danýþmana baþvurmanýz tavsiye edilir. Bu sirkülerler ve içeriðindeki bilgiler, olduklarý þekliyle sunulmaktadýr; "DRT Yeminli Mali Müþavirlik ve Baðýmsýz Denetim A.Þ." ve "Deloitte Touche Tohmatsu" (bir Swiss Verein'i) ve onun üye firmalarý ve bunlarýn iþtirakleri ve filyalleri (bundan böyle ayrý ayrý veya birlikte "Deloitte"), bunlarla ilgili sarih veya zýmni bir beyan ve garantide bulunmamaktadýr. "Deloitte", söz konusu sirkülerlerin ve içeriðindeki bilgilerin hata içermediðine veya belirli performans ve kalite kriterlerini karþýladýðýna dair bir güvence vermemektedir. Sirkülerleri ve içeriðindeki bilgileri kullanýmýnýz sonucunda ortaya çýkabilecek her türlü risk tarafýnýza aittir ve bu kullanýmdan kaynaklanan her türlü zarara dair risk ve sorumluluk tamamen tarafýnýzca üstlenilmektedir. "Deloitte", söz konusu kullanýmdan dolayý, (ihmalkarlýk kaynaklý olanlar da dahil olmak üzere) sözleþmesel bir dava, kanun veya haksýz fiilden doðan her türlü özel, dolaylý veya arýzi zararlardan ve cezai tazminattan dolayý sorumlu tutulamaz.