In Turkey, the concept of ‘disguised profit’ that existed in Corporate Tax Law No. 5422 has been re-defined by Corporate Tax Law No. 5520, clause 13, under the name ‘Disguised profit distribution by means of transfer pricing,’ thus referring to OECD regulations, and by Law No. 5615. Similar provisions have been added to the Income Tax Law, with clause 41. As a result of these changes, ‘Transfer Pricing Application’ became effective as of 01.01.2007.
With the above-mentioned regulations, if entities trade products or services with related parties over set values and prices, in contradiction to the arm’s length principle, those earnings, totally or partially, will be considered disguised profit distribution by means of transfer pricing. Purchases and sales, production and construction, renting and leasing, lending and borrowing money, transactions require bonuses, salaries and similar payments will in all cases be considered trade in products and services.
Disguised profit distribution by means of transfer pricing, totally or partially, will be treated as distributed profit or, for non-resident taxpayers, as value transferred to the head office on the last day of the related taxation period. Thus, previous taxation assessments for such taxpayers will be revised accordingly.
Finally, over the value of distributed disguised profit by means of transfer pricing, the tax authorities will be able to impose corporate/income tax (and VAT, where applicable) with related penalties, withholding tax with related penalties due to profit distribution, and, finally, for the shareholder who received distributed profit, to impose income tax with related penalties.
Requirements of Transfer Pricing Application
Primarily, by analyzing their processes and economic results, taxpayers should conduct studies to determine equivalent prices and profit margins, and adapt their global transfer pricing models to the affiliates and branches located in Turkey, thus establishing the transfer pricing structure appropriate to them.
Taxpayers should be able to prove that their trade with related parties observes to the arm’s length principle and profit rates in the market. In so doing, taxpayers will find it useful to create a relationship between the process of establishing a transfer pricing structure and strategy, and the “Strategy Establishment Report for Transfer Pricing,” and to periodically revise this report in line with changing market conditions or changing company structure.
For trade in goods and services performed over a given period with related parties, corporate taxpayers must fill out a “TRANSFER PRICING, CONTROLLED FOREIGN COMPANY AND DISGUISED CAPITAL FORM” and send it to the related tax office as an attachment to their corporate tax declarations.
Taxpayers who are registered at the Major Taxpayers Tax Office, for all local and foreign transactions with related parties in a given period, and other taxpayers, for all foreign transactions with related parties, are obliged to prepare an “ANNUAL TRANSFER PRICING REPORT” until the deadline for the corporate tax declaration period, and, after this deadline, to keep it ready for submission upon the demand of the tax office or related tax authorities.
Our Services for Transfer Pricing
The “Transfer Pricing Team” of Mazars in Turkey, consisting of specialists experienced in operational assessment and tax legislation, is organized to respond to all of your company’s needs with regard to transfer pricing.
Mazars in Turkey offers the below services for determining the “Best” transfer pricing strategy for minimizing risks and disputes that your company may encounter.
- Preparation of Annual Transfer Pricing Documentation Report,
- Review and evaluation of existing Transfer Pricing Documentation Reports,
- Preparation of a “Risk Assessment Memorandum” evaluating and analyzing current Transfer Pricing policies or existing Transfer Pricing Reports.
- Preparation of a Transfer Pricing Planning Study (Master File) for the corporate taxpayers which do not have a set Transfer Pricing Policy.
- Planning and evaluation studies due to the restructuring of businesses with the Transfer Pricing point of view,
- Establishment of the company’s transfer pricing strategy by using methods such as company process and functional analysis, comparability studies via Thomson Reuters database and ONESOURCE software, and preparation of the “Strategy Establishment Report for Transfer Pricing”,
- Preparation of Financial Benchmark in case of financial intra-group services such as loan transactions via DealScan – Thomson Reuters Loan Connector database and ONESOURCE software,
- Our team can provide consultancy services for completing the “Form Relating to Transfer Pricing, Controlled Foreign Entities, and Thin capital” which is appendix 2 of corporate tax declaration form regarding the transactions made with domestic or foreign group companies.
- Review and perform consultancy services for service contracts regarding the transactions your company made either with domestic or international related parties both from Turkish Tax and OECD TP Regulations point of view.
- In the events that Turkish Tax Administration criticizes the current Transfer Pricing methodologies of your company, we can perform defense services in order to resolve the possible disputes.
- We can manage the application of advance pricing agreements processes made with Turkish Tax Administration for the companies that has doubts about which transfer pricing method to apply.
- We can perform periodic audits in order to determine whether your company complies with your group’s transfer pricing policies throughout the year so that we can determine beforehand the possible TP risks.
- We can perform training sessions for you and your company personnel about various Transfer Pricing matters throughout the year,
- Distribution of monthly Newsletters about Transfer Pricing,
- Use of social media portals in order to work as interactively as possible to provide you the latest and most interesting news and information about transfer pricing.
The international press group, International Tax Review, located at London, named Mazars in Turkey “THE BEST TRANSFER PRICING FIRM OF TURKEY” at the “2009 European Tax Awards Contest.”