Turkey

Introduction

Transfer pricing has been part of Turkey’s legislative framework since the 1930s.

The country’s current rules are based on the Corporate Tax Code of 2006 (Law No. 5520), which came into force on January 1, 2007. It introduced numerous innovations in the Turkish tax system, such as compatible pricing and advance transfer pricing agreements (Article 13, Disguised Profit Sharing through Transfer Pricing).

In November 2010, the Turkish Tax Authority published its comments and opinions on the new Corporate Income Tax Code in the Guideline for Disguised Profit Sharing through Transfer Pricing.

On September 1, 2020, the Turkish Government published the General Notice on Disguised Profit Sharing through Transfer Pricing (Series No. 4) in the Official Gazette. It provides detailed information on the new transfer pricing documentation requirements.

Arm’s Length Principle

Pursuant to Article 13.3 of the CITL (Corporate Income Tax Law), it is stated that:

“The Arm’s Length Principle states that the price or consideration charged for the purchase or sale of goods or services between related parties must be similar to that of independent parties.”

Related Parties

Article 13 of the Turkish Corporate Income Tax Law defines related parties as:

Shareholders of companies, corporations, and individuals related to such shareholders;
Legal entities and individuals who directly or indirectly control or are controlled by a corporation or its shareholders through management, supervision, or share capital; and,
Spouses, siblings, and parents of shareholders, as well as natural relatives of shareholders and in-laws up to the third degree (included).

Transfer Pricing Methods

The Corporate Income Tax Code lists acceptable methods for determining whether a related party transaction is consistent with the arm’s length principle. The alternatives are as follows:

Comparable Price Method between Independent Parties.
Resale Price Method between Independent Parties.
Cost Plus Profit Method.
Profit Split Method.
Transactional Net Margin Method..

Transfer Pricing Documentation

There are currently different types of documentation requirements:

Master File, prepared by the Corporate Income Tax taxpayers, affiliated to a multinational business group, and whose asset size in the balance sheet and the number of net sales in the income statement as an attachment to the annual income tax return related to the previous fiscal year are 500 million Turkish Liras, additionally until the end of the fiscal year following the corresponding fiscal year and after the end of this period, must be filed, if requested, to the Turkish Tax Administration or other tax authorities empowered to perform tax verifications.
Annual Transfer Pricing Report (Local Report) to be prepared by all the Corporate Tax taxpayers up to the deadline for filing the annual return and, upon request, sent to the Turkish Tax Agency or other tax authorities empowered to perform tax audits.
Country-by-Country Report: The ultimate parent entity or the substitute parent entity, resident in Turkey, of the multinational corporate group whose total consolidated group revenue equals and exceeds € 750 million shall prepare country-by-country reports until the end of the twelfth month after the Fiscal Year Report and files it electronically to the Turkish Tax Authority.
Notification form related to Country-by-Country Reports: Members of the multinational corporate group included in the CbCR scope will report to the Turkish Tax Administration whether they are the ultimate parent entity or the substitute parent entity and which entity will report the CbCR on behalf of the group and its fiscal year. The information will be provided electronically annually via the internet until the end of June of the year following the fiscal year report.
Taxpayers with APAs will be required to prepare an Annual APA Report each year during the term of the APA and file it to the Turkish Tax Agency before the annual income tax return filing deadline.

As a general rule, the tax administration or tax inspectors must provide at least fifteen days for taxpayers to file any written information.

Transfer Pricing documentation must be prepared in the Turkish language. If prepared in another language, it must have a version.

Penalties

If the annual transfer pricing report is not prepared timely and/or cannot be timely filed to the tax authority or those authorized for tax inspection, in a possible determination related to disguised profit sharing through transfer pricing, the taxpayer’s right to deduct 50% of the tax loss penalty is questioned.

Protection of a 50% partial penalty is applied if all transfer pricing documentation obligations are fulfilled. Consequently, the preparation of the transfer pricing documentation before the maximum deadline is one of the conditions required to benefit from partial penalty protection.

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