This country-specific Q&A provides an overview to tax laws and regulations that may occur in Turkey.
It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.
This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax-2/
How often is tax law amended and what are the processes for such amendments?
There are several tax laws for different kind of areas and the content-interpretation of tax laws are mainly extended through regulations and communiqués stipulated by the Ministry of Finance. The amendments for tax laws take place not so often but the regulations and communiqués are amended more frequently. The tax laws are amended or abolished through other laws legislated by Turkey Grand National Assembly and the regulations/communiques are amended through other regulations/communiqués. The investors, industry and businessmen’s demands have important effect on the amendments of course but commonly The Government takes action depending on the investment market’s position.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
Yes, the principal procedural obligation of a tax payer is maintenance of records duly, in line with Tax Procedural Law and uniform chart of accounts. The tax return filing periods depends on the kind of tax; for instance corporate tax returns are filed annually but there are advance corporate tax returns which are required to be filed quarterly periods; VAT returns are submitted monthly; withholding tax returns are either submitted monthly or quarterly.
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
Ministry of Finance and Revenue Administration (which is also an organ of the Ministry) are the main regulatory authorities for tax legislation. However, one cannot resolve the standard issues with these authorities. When a problem/issue emerges tax payers commonly apply/resort to their tax office for the detail. But, if an assessment is made or about to be made against a tax payer following a tax inspection, s/he can apply to settlement commissions to minimize the tax/penalty burden.
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
In Turkey, tax payers either resolve the issues through settlement or applying to court for annulment of a tax assessment. Tax Courts are the special judgment authorities for all tax related cases. In general, first instance courts render their decision within one year; but the appeal procedure takes approximately 2 more years for finalizing the case. Thus, a tax payer should expect approximately 3 years for the whole procedure.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
There are set dates or deadlines for payment of tax following the submission of tax returns. However, if tax payers have doubts in payment of those taxes that they have declared in their tax returns then they have right to submit the tax returns with reservation; but still they have to pay the tax in advance. In such cases, tax payers litigate the tax in dispute and if court renders a favourable decision they are paid back with the interest amount by the Tax Office.
On the other hand, if a tax assessment is made following a tax inspection, then once this assessment is litigated for its annulment, the payment is postponed until the decision of the tax court. If the decision of the tax court is against the tax payer, then payment is inevitable. Yet, if favourable decision is rendered after the appeal, again the tax is repaid with the interest amount.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government?
In Turkey, there is of course rule of taxpayer confidentiality and accordingly tax authorities are not allowed to disclose information of taxpayers to third parties. However, in certain cases such as in transfer pricing cases where the tax inspectors have precedents to support their reports, the tax courts have right to request the name and market details of the precedents to find out whether the precedent study is conducted duly.
Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?
Are there any plans for the implementation of the OECD BEPs recommendations and if so, which ones?
Turkey currently implements many of OECD BEPs recommendations regarding transfer pricing, permanent establishment, monitoring and tax treaties.
Is there a GAAR and, if so, how is it applied?
As per Tax Procedural Law, tax payers are required to keep their books and records in line with uniform chart of accounts which is quite different from IFRS. If the books are not in conformance with these rules, tax authority/inspectors impose irregularity penalties during the tax inspections conducted occasionally.
Does the tax system broadly follow the recognised OECD Model?
Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties.
If so, what are the current rates and are they flat or graduated?
a. Taxation of business profits, YES, 20% corporate income tax
b. Taxation of employment income and pensions, YES, 15-35% Income withholding tax on salaries
c. VAT (or other indirect tax), YES, 1%, 8%, 18% applies depending on the type of good and service
d. Taxation of savings income and royalties, YES, 0%-15% over interest and 20% over royalties through withholding tax
e. Taxation of income from land, YES, 15-35% Income Tax, 20% Corporate Income Tax (certain exemptions exist)
f. Taxation of capital gains, YES, 15-35% Income Tax, 20% Corporate Income Tax (certain exemptions exist)
g. Stamp and/or Capital duties, In general, stamp tax is calculated at the rate of %0,948 over the monetary amounts written in certain documents.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
Broadly, corporate tax is calculated over sum of net income and non-deductible expenses.
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities?
Yes, there are several ways to conduct business in Turkey such as through companies, partnerships, funds.
Is liability to business taxation based upon a concepts of fiscal residence or registration?
In principle, in order to do business, it is required to be registered both to tax office and trade registries by declaring its residence in Turkey.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
No, corporate taxation regime is standard but there are several tax incentives and exemptions for certain transactions. For instance, there are free trade zones. the entities licensed to operate in free trade zones are granted with some exemptions; such as customs tax and VAT.
Are there any particular tax regimes applicable to intellectual property, such as patent box?
No. But there are certain exemptions for intellectual property related incomes/revenues.
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
Consolidation is not necessary and consolidated financials are not submitted to any tax authority. It is up to groups’ decisions either to prepare consolidated financials or not.
Is there a CFC or Thin Cap regime?
Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
Are there any withholding taxes?
Are there any recognised environmental taxes payable by businesses?
Environment and Cleaning Tax applies to both individuals and business places.
Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?
For the countries where double taxation treaties are concluded, taxations is made in line with these treaties, otherwise, Turkey has right to levy tax for foreign dividend income.