Turkey has signed Common Reporting Multilateral Competent Authority Agreement (CRS MCAA) for the implementation of automatic exchange of financial account information pursuant to the OECD/G20 Common Reporting Standard (CRS) to launch exchanges in 2018. This country is the 88th jurisdiction to sign this treaty. This convention aims to prevent tax evasion. This treaty also contains provisions that would make it easier to implement automatic exchange of country-by-country reports on the tax affairs of multinational corporations with other countries’ tax administrations according to action 13 of the OECD/G20 base erosion and profit shifting (BEPS) project. Also, it helps in the implementation of exchange of private tax rulings involving multinational firms in accordance with action 5 of the BEPS project.
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.
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.
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.
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.
On 8th March 2017 Law No. 6824 on the restructuring of certain public claims and the amendment of certain laws and cabinet regulations was published in the official gazette. The Law changes both the Income Tax and VAT Laws, introducing a new income tax reduction for qualified taxpayers and a VAT exemption for certain real property sales under certain conditions.
Tax relief is available for eligible individual and corporate income taxpayers if they are in compliance with the requirements for income tax returns and payments. The relief is available to individuals engaged in commercial, agricultural or self-employment activities and to companies apart from those in finance and insurance. This new relief allows taxpayers to take advantage of a 5% income tax reduction on their annual income or corporate income tax returns. The highest deduction amount is TRY 1 million. If the computed deduction amount is more than the taxable amount, the remaining amount can be offset from the taxpayers’ accrued declared taxes within a year following the annual income tax return or corporate tax return submission date. Taxpayers cannot obtain the 5% tax relief if they are engaged in tax fraud in the declaration year and in the four previous years. This new relief will be applicable for tax returns submitted after January 2018.
The VAT exemption is intended to encourage the flow of foreign currency into Turkey as well as helping the construction sector. The exemption applies to the sale of commercial or residential real estate to certain nonresident individuals or companies. The exemption will be applicable only upon the first delivery of domestic or business real estate properties and only applies if the real estate properties are paid for in foreign currency.
The Tax Administration of Turkey declared an announcement on 20th March 2017 that it had signed a new unilateral Advance Pricing Agreement (APA) on 1st March 2017. The APA is prepared on the basis of article 13 of Corporate Tax Law No. 5520.
The Decree 2017/9973 was published in the official gazette on 15th March 2017 that reduces stamp duty, deed fees and Resource Utilization Support Fund (RUSF) rates on certain transactions. The Decree entered into force on the day of its publication. The new rates apply as from 15th March 2017. The stamp duty rate has been reduced to 0% from 0.948% for contracts with land owners putting land at the disposal of contractors and obtaining a certain percentage of a building in return or revenue sharing construction works, contracts related to building inspection, counseling service contracts for construction works or revenue sharing business models, counseling service contracts for construction works or revenue sharing business models. The deed fee rate has been reduced to 1.5% from 2% for houses and offices. RUSF rates are set at one per cent (for loans with a maturity of up to 1 year) and zero per cent (for loans with a maturity of more than 1 year) on TRY loans received from abroad by residents in Turkey.
The General Communiqués (Communiqué Nos. 7 and 8) regarding research and development (R&D) incentives were published on 8th March 2017 in the Official Gazette. The Communiqués Nos. 7 and 8 amend General Communiqué Nos. 4 and 6 on Law No. 5746 on R&D Incentives. Communiqué No. 7 increases the scope of the R&D deduction and income tax exemption. In accordance with Communiqué No. 7, travel and accommodation expenses, and daily allowances for R&D and designing activities carried on outside R&D or designing centers are enclosed by the R&D deduction and income tax exemption. In other words, Communiqué No. 8 enhances the scope of the R&D deduction. Under Communiqué No. 8, postal and delivery services, office supplies and stationery expenses, and legal and scientific counselling expenses relating to R&D and designing activities are covered by the R&D deduction. The Communiqués entered into force on the similar date of their publication. Communiqué No. 8 is effective retroactively from 1 March 2016.
The Law No. 6824 was published in the official gazette on 8th March 2017 that amend a number of laws. Under the Law, a compliant taxpayer is defined as a taxpayer not having tax debts or not including tax penalties over the amount of TRY 1,000. The reduction in case of compliant taxpayers will be effective from 1st January 2018. A 5% reduction has been introduced in the Law for compliant taxpayers, with the exception of financing and banking companies, insurance and reassurance companies, pension companies and pension mutual funds. Also, the amount of the unused reduction will be credited within 1 year against a taxpayer’s other tax debts, but will not be refunded. The Law presents a new section on stamp duty rates applicable to specific types of contracts (i.e. building inspection contracts, contracts between contractors and sub-contractors, contracts with land owners and counseling service contracts in case of construction works or revenue sharing business model) used in the construction sector and it was entered into force on 8th March 2017. The Law permits the Council of Ministers to modify the deed fee rates which are based on the type, size, location and tax value of the real estate. The amendment on fee was entered into force on 8th March 2017. A new VAT exemption was introduced by this Law in case of first-time sales of houses or workplaces to non-residents on the condition that the foreign currency paid for the real estate is shifted to Turkey. Besides, non-resident Turkish citizens having obtained a residence and work permit in foreign countries. Again, non-resident companies are also covered by this new VAT exemption. The VAT exemption will be effective from 1st April 2017.