• It is the spirit and not the form of law that keeps justice alive.
    Earl Warren


The Law No. 6728 Amending Some Laws for the purpose of Improvement of the Investment Environment entered into force with the Official Gazette dated 09.08.2016 and numbered 29796 (the “Law No. 6728”) and the following matters in Article 13 of the Corporate Tax Law No. 5520 has been amended in order to overcome the problems that may be experienced in practice and to comply with the international legislation.

First of all, the scope of the definition of “related parties” has been revised and clarified. There was not any provision on the ratio of the related parties’ relationships before the Law No. 6728. Hence, restrictions on the direct or indirect related parties’ relationship were not clear. It is stated in the Law No. 6728 that: “
there has to be share, vote or profit share right of at least 10% ratio in order to consider direct or indirect related parties relationships within the scope of concealed gain distribution. If there is vote or profit share right at least in the ratio of 10% without a direct or indirect related party relationship, the parties will be considered as related parties.” The condition of 10% ratio provided in this regulation will facilitate the documentation obligation. These ratios will be considered cumulatively for the related parties. It is also stated that the events in which there is a possibility of control of the management will be deemed as a related party relationship even though there is not a shareholding relationship. This matter simplifies the reporting for the taxpayers.

The Council of Ministers is authorised to determine the ratio between 1% and 25% regarding real persons, institutions, direct or indirect shareholders or the acquisition of the shares, cumulatively or separately.

Apart from this, “transactional profit methods” has been added to the relevant article of the Corporate Tax Law, as a transfer pricing method. It should be noted that, this amendment eliminates any priority among transactional profit methods and traditional methods. Before the Law No. 6728, transactional profit methods were defined under the Decision numbered 2007/12888 of the Council of Ministers and the General Communiqué Serial No. 1; they were not contained in the relevant article of the Corporate Tax Law. Furthermore, it is more synchronised now with the latest amendments in the transfer pricing guide of the Organisation for Economic Co-operation and Development (OECD). At the same time, Turkey’s “local legislation infrastructure” is complied with the Base Erosion and Profit Shifting (BEPS) Project of the OECD and this is a milestone for the multinational Turkish companies that have affiliates abroad. Now, a communiqué regarding this matter is expected to be published.

The Advance Pricing Agreements enter into force as of their signing date and are applied prospectively. However, it is stated in the Law No. 6728 that the Advance Pricing Agreements (
Peşin Fiyatlandırma Anlaşması) will be applicable to the previous periods, provided that the applicability of the repentance and correction provisions of the Tax Procedural Law is possible and the conditions of the Advance Pricing Agreement are valid in those periods, as well. In this respect, the tax payments that have been made before the validity of the Law No. 6728 will not be refused or returned. Moreover, Advance Pricing Agreements are going to be valid for a maximum of three years in terms of the determined method and the Council of Ministers will be authorised to extend the validity thereof up to five years.

It should be further noted that the distribution of concealed gain is clarified with the Law No. 6728. It has regulated the possibility of VAT discount and clarified a disputed issue. Even the VAT being paid to the customs or the relevant Tax Office by the taxpayer, concerning the exported goods or services will be the subject of tax discount if there is concealed gain distribution by transfer pricing, following the enforcement of this regulation. In other words, as per the provisions of the Income Tax Law No. 193 and the Corporate Tax Law No.5520; the correction of the discounted part of VAT amounts that are related to the expenditures which are not legally accepted and that are paid during the import process or are paid under the capacity of taxpayer, is precluded.

In addition, the VAT General Implementation Communiqués with the Serial Numbers 6 and 1 are amended. The VAT accrual containing penalty due to any correction on discount accountings in relation to excessive or unnecessary payment of tax during the import process, is cancelled. Parallel to that, such implementation covers the paid taxes that are declared by the taxpayer in relation to the services provided abroad (including intangible right payments). The Law No. 6728 strengthens the provisions that had been regulated under the abovementioned communiqués.

Furthermore, it is stipulated that loss of tax penalty, due to the taxes that were not accrued on a timely manner or were deficiently accrued as a result of concealed gain distribution, will be discounted in ratio of 50% for the taxpayers that fulfil their documentation obligations completely and in due time.

In conclusion, the Council of Ministers has some authorities by the Law No. 6728 in relation to the ratios of related parties, the terms of the Advance Pricing Agreements, documentation obligations, imposing an obligation of inclusion of information regarding related party activities abroad and to determine its procedure within the frame of international conventions. Additionally, the Law No. 6728 gives a possibility to the VAT discount specifically for the abovementioned disputed matters.

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