On 1 September 2020, the Turkish Revenue Administration has published transfer pricing General Communiqué No. 4 on disguised profit distribution in the Official Gazette No. 31231. The Communiqué explains information regarding new transfer pricing country-by-country (CbC) reporting and master file certification obligations within the scope of the OECD Base Erosion and Profit Shifting (BEPS) Action 13. The Communiqué is in line with Presidential Decree No. 2151 and enters into force on the date of its publication. The Communiqué includes the following key measures:

Related party definition

Pursuant to the amendment made in Article 59 of Law No. 6728 and Article 13 of Law No. 5520, the second paragraph of Article 13 of Law No. 5520 requires a minimum 10% partnership, voting or dividend right to be considered within the scope of disguised profit distribution in cases where the relationship occurs directly or indirectly through partnership. These rates are taken into account collectively in terms of related persons.

Transfer pricing methods

The Communiqué removed hierarchy among transfer pricing methods and provided that the arm’s length price or values determined by utilizing the most appropriate method, in terms of the nature of the transaction, among the comparable uncontrolled price method (CUP), cost plus method, and resale price method, and profit split method and transactional net margin method.

Advance pricing agreements (APAs)

The term of the advance pricing agreement is a maximum of five years and it becomes effective within the period and conditions specified in the agreement from the date of signing. For example, if, as a result of the application made by the taxpayer on 2 December 2019, the ongoing process is concluded with the agreement signed on 31 August 20202, the taxpayer and the Administration may agree to implement the agreement for five years. In this case, within the time and conditions specified in the agreement, to take effect from the date of the signing of the agreement on 31 August 20202; It can be applied for 2020, 2021, 2022, 2023, and 2024 accounting periods, as well as the parties may decide to start the term of the agreement as of the 2021 accounting period.

Intra-group service

The paragraph has been added to the end of the section titled 11.3- Determination of Equivalent Value for In-Group Services of the same Communiqué. Payments made due to intra-group service provided are taxed according to the nature of the service received, taking into account the provisions of the domestic legislation and the relevant double taxation agreement provisions.

Country-by-country (CbC) reporting

  • Ultimate parent company of a group that is resident in Turkey for tax purposes and has a minimum consolidated turnover of EUR 750 million is required to prepare a CbC Report by the end of the twelfth month following its fiscal year. The first CbC Reports will be for the year 2019, and must be submitted to the Tax Authority by 31 December 2020;
  • Turkish ultimate parent company or surrogate entity is located outside Turkey, should not file a CbC report in Turkey if Turkey has a Qualifying Agreement with such countries;
  • As of September 2020, there is no CbC Multilateral Competent Authority Agreement (MCAA) signed by Turkey and if the Agreement is not signed by 31 December 2020, Turkish subsidiaries of an MNE will be required to locally file a CbC report in Turkey;
  • The Turkish ultimate parent company of an MNE group may assign surrogate entities abroad; though it is still mandatory for the MNE group to file a CbC report with the Turkish Revenue Administration as well;
  • CbC reporting will be delivered to the Administration in XML format over the Revenue Administration Information Transfer System (BTRANS). The schema check of the transmitted XML files will be done during the BTRANS file upload, and incorrect files will be rejected;
  • CbC reporting Notification Form submission deadline for the period of the fiscal year 2019 has been postponed to 31 October 2020. The CbC reporting notification will be submitted electronically through the Online Tax Office. Covered taxpayers are required to obtain a user code, password, and password from their tax office.

Master file

  • Master file is prepared by corporate taxpayers who are affiliated with the MNE group and whose asset size in the balance sheet and whose net assets and net sales are both at least TRY500 million, which are attached to the corporate tax declaration for the previous accounting period;
  • The first master file must be prepared for the 2019 accounting period until 31 December 2020 and, if requested after this date, it must be submitted to the Administration or those authorized to conduct tax inspection. Those subject to the special accounting period prepare the first master file for the accounting period starting after 1 January 2019.

Annual Transfer Pricing Report

The annual transfer pricing report must be prepared in accordance with the format in Annex-4, until the deadline for the filing of the corporate tax return, and after the expiry of this period, it must be submitted to the Administration or those authorized to conduct tax inspections if requested.

The Communiqué also clarifies the transactions which are covered or not for the annual transfer pricing report, and information and documents to be included in the annual transfer pricing report.

Form regarding transfer pricing, controlled foreign institution, and thin capitalization

The corporation taxpayers must fill in the “form regarding transfer pricing, controlled foreign corporation, and thin capitalization ” in Annex-3 regarding the purchase or sale of goods or services with related parties within an accounting period and it is attached to the corporate tax return and must send it to the tax office.

In filling the form, it is not necessary to include information on the purchase or sale of goods or services with an annual net amount of less than TRY30,000 on the basis of each related person, and the related person information.

Reduction of penalties

The penalty is applied in accordance with the provisions of the Tax Procedure Law. The Communiqué provided that the full and timely preparation of transfer pricing documentation, taxpayers may get a penalty reduction of 50% discount for taxes that have not been accrued on time due to disguised earnings or are not accrued incompletely.