Accountancy in Turkey

>> Transfer Pricing in Turkey

Under the Transfer pricing (TP) rules, the arm’s length principle and OECD TP guidelines have been incorporated in the article 13 of Turkish Corporation Tax Law and documentation requirements are obligated for the taxpayers in order to support the methods to be applied in determination of the arm’s length price. The TP rules aim to improve the Turkish tax system in a manner defining the standards to apply in transfer pricing dealings between related parties.

Arm’s Length Principle

Under the arm’s length principle within the legislation, related parties must set the transfer prices for purchase and sale of goods and services as if they would have been agreed between unrelated parties.

Related Parties

A comprehensive definition of “related party” for transfer pricing purposes in introduced as part of the TP rules. Accordingly, direct or indirect attachment in the management or control is included in the related party definition in addition to shareholder/ownership relations. Besides transactions with foreign entities which are based in tax havens or in jurisdictions that provide harmful tax regimes will also be regarded as related party transactions.

Adoption of methods defined in line with OECD guidelines

The TP rules define the following transfer pricing methods for determination of arm’s length transfer prices:

  • Comparable uncontrolled price method (CUP),
  • Cost plus method,
  • Release price method, and;
  • Other methods defined by the company itself as most appropriate to use in the determination of the arm’s length price.

Three methods mentioned under TP rules are traditional transaction methods that have been comprehensively explained by OECD Guidelines as generally accepted methods for determination of the arm’s length prices. Depending on the circumstances, a choice of these three accepted methods has to be made by Turkish taxpayers. On the other hand; if above-mentioned methods cannot be used by the company for certain situations, the taxpayer will be free to adopt other methods. This means companies can also choose other methods such as at below mentioned:

  • Profit Split Method
  • Transactional Net Margin Method

Documentation Requirements

The legislation introduced documentation requirements as part of Tp rules wherein Turkish taxpayers should keep the documentary evidence within the company in case of any request by tax authorities. The documentation must represent how the arm’s length price has been determined and the methodology that has been chosen by use of any fiscal records and calculations charts available at the taxpayer.

According to the General Communique, all tax-payers shoulds submit the form “ Transfer Pricing Controlled Foreign Corporation and Thin Capitalization” as an attachment of annual corporate tax return.

On the other hand, all the tax-payers that are registered to “ Major Tax-Payers Tax Office” are obliged to prepare an annual TP Report for their related party transactions in the given format in the appendix number 3 of Communique and submit this report with the below mentioned supportive information and documents, when demanded by the Turkish tax authorities. TP report obligation for tax-payers that are registered to other tax offices I is only limited to transactions with non-resident related parties. The related report should be prepared until the submission date of the Corporate Income Tax Return and be submitted when asked by the Tax Directorate and the inspectors.

On the other hand, the corporate taxpayers that are registered to other tax offices should also prepare the information and documents that are shared below for the transactions with the related parties that are resident in Turkey. The related information and the documents should be able to be submitted when asked by the Tax Directorate and the inspectors.

The transfer pricing report, detailed information and documents about the company and its transactions have to be ready for submittal to the Tax Authority in the case of a claim. The related documents and information must be declared in Turkish translation if they are written in foreign languages.

Latest version updated 8th April 2019

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