Transfer Pricing
Country Summary
Turkey

This document outlines Turkey’s transfer pricing regulations, introduced in 2007, which align with the OECD Transfer Pricing Guidelines. It discusses the application of the arm’s length principle to financial transactions and employment relations among associated parties. Key features include the definition of related parties, transfer pricing documentation requirements, audit practices, and the availability of Advance Pricing Agreements (APAs).

Overview:

Turkey’s Transfer Pricing Regulations

Turkey implemented transfer pricing rules in 2007 under Article 13 of the Corporate Income Tax Law. These regulations follow the arm’s length principle from the OECD Transfer Pricing Guidelines and apply to various financial, economic, and commercial transactions among associated parties.

References to International Rules

Turkey’s rules align with international standards, such as the OECD Transfer Pricing Guidelines, and are defined in Article 13 of the Corporate Income Tax Law. The Council of Ministers established transfer pricing methods to ensure compliance.

Definition of Related Party

The arm’s length principle applies to related parties, which include shareholders, individuals or entities associated with shareholders, those under common management or capital control, and more. Recent changes impose a 10% threshold for direct or indirect shareholding relations.

Transfer Pricing Documentation

Transfer pricing documentation follows the OECD’s guidelines and applies to various business sectors, including pharmaceutical, automotive, and consumer goods. Key areas of focus include the pricing of raw materials, management fees, and year-end adjustments.

Tax Havens & Blacklists

Turkey addresses tax evasion through various measures, including taxation of payments to corporations established in countries undermining fair tax competition. Controlled Foreign Corporations are also subject to taxation in Turkey.

Advance Pricing Agreement (APA)

Turkey offers APAs for corporate income taxpayers, including unilateral, bilateral, and multilateral agreements. The application fee for APAs has been abolished. Additionally, the methodology in an APA can be applied to previous tax periods.

Audit Practice

Turkey has seen an increase in transfer pricing audits across different industries. These audits examine issues like raw material pricing, continual losses, and management fees. They aim to eliminate tax risks.

Transfer Pricing Documentation Details

The level of documentation required is extensive, covering organizational information, financial data, pricing methods, and the arm’s length price determination process. The Ministry of Treasury and Finance may request additional information.

Country-by-country Reporting (CbCR) Obligation

Turkey has adopted CbC reporting through a draft communiqué. Notifications are required, and deadlines have been extended. The submission process will be electronic.

Record Keeping

Taxpayers must retain documentation for five years after the end of the relevant financial year.

Penalties and Interest Charges

Penalties apply if the required documentation is not submitted or if transactions are inconsistent with the arm’s length principle. These penalties include tax penalties and default interest charges.

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