Turkey: Council of Minister proposes transfer pricing provisions

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A draft Communique regarding transfer pricing has been published in Turkey. It generally represents measures of the OECD’s base erosion and profit shifting (BEPS) Action 13 on country-by-country reporting and transfer pricing documentation. The amendments related to transfer pricing would be regulated by a draft Council of Minister decision (2017/01), and it is expected to be effective before the end of 2017. The draft Council of Minister decision announced the definition of group, multinational organizations, ultimate parent, reporting entity, alternate entity, and systemic failure under the country-by-country (CbC) reporting rules.

The Decision of the draft Council of Minister declares changes to the Turkish transfer pricing provisions. These rules follow OECD transfer pricing guidelines. The proposed decision provides a 10% threshold that applies in accordance with the definition of related party, the Transitional Net Margin Method (TNMM) and Profit Split Method recognition, a 50% penalty relief offers in case of timely preparation of proper transfer pricing documentation and changes to the related party definition, real persons are to be considered as related parties, no preferential transfer pricing methods are mentioned, Validity period of APA needs to be extended from three years to five years, renewal applications for APA must be filled at least 6 months prior to the APA expiration, APA roll-backs was defined, so in this way, APA would correct prior years’ tax returns , any excess taxes paid in prior years would not be refundable. In accordance with the draft Communique, certain taxpayers need to prepare and maintain a Master File, a Local File and a Country-by-Country report.

Master File

According to this draft “transfer pricing communique”, the multinational taxpayers who have net sales and assets more than 250 million TRY would be need to prepare a master file. The first file would relate to the tax period 2017 and would need to be ready within 2 months after the corporate income tax returns submission.

Local File

The requirement is similar to the previous annual transfer pricing report. All taxpayers with cross-border transactions (for large-scale taxpayers both domestic and cross-border intra-group transactions) would need to prepare the local file. Additionally, companies working in free trade zones are required to get ready transfer pricing report for their domestic intercompany transactions.

CbC Report

The CbC reporting would be applicable for taxpayers who belong to a multinational enterprise group and having a combined revenue of approximately €750 million. This report would present the profit or loss before tax, back year losses, principal amount, paid/increased tax, headcount, tangible products (not including cash and cash equivalents). These all of which are generally consistent with the OECD measures. The first CbC report would be submitted by 31st of December 2017.

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