The Law No. 6728 on the amendment of certain laws for the improvement of the investment landscape has been published in the Official Gazette on 9 August 2016. This law amended certain transfer pricing provisions. Some of the provisions are given below:
Requirement: Rule: New law no. 6728 as effective from 9 August 2016, provides new rules related to transfer pricing. The provisions make changes to article 13 of Turkey’s corporate tax law (no. 5520) to align Turkish transfer pricing rules to OECD transfer pricing guidelines.
Requirement: Control: Article 59 of law no. 6728 adds a new clause to the second paragraph of article 13 of law no. 5520 defining related party with threshold. In order for a case to be deemed as a disguised profit distribution through a direct or indirect shareholder relationship, at least a 10% shareholder relationship, voting or dividend rights must be present. In certain circumstances when there is at least a 10% direct or indirect voting or dividends right present without a shareholding relationship, the parties will also be deemed to be affiliated. With regards to related parties, these percentage ratios will be considered collectively.
Applicable method: Transactional Net Margin Method: TNMM methods are based on profits arising from the transactions between related parties in designation of arm’s length price or return. These methods consist of the transactional net margin method and profit split method. The transactional net margin method (TNMM) is based on the examination of an established net profit margin realized by the taxpayer resulting from a controlled transaction on certain relevant and appropriate basis such as costs, sales or assets.
Profit split method: Profit split method refers to the arm’s length split of total operating margin or loss between related parties realized from one or more related-party transactions with regards to the functions performed and risks borne by each party.
Other methods: As per the new law no. 6728, when an arm’s length price or remuneration could not be identified via any of the applicable methods, another method that is consistent with the nature of the related-party transaction and defined by the taxpayer can be used.
Documentation: Penalty for documentation failure: As per the new law no. 6728, when transfer pricing documentation obligations are fulfilled completely and timely, the loss of tax penalty relating to under-assessed or past-due taxes by reason of a disguised profit distribution will be imposed with a 50% discount.
APA Rules: As per the new law no. 6728, The taxpayer and the Ministry are permitted to implement the designated method for previous tax periods if not barred by statute of limitations by including the method in the agreement scope, given that the practice of repentance and correction precepts of the Tax Procedure Law are applicable and the agreement conditions are valid for the listed periods.
