Worldwide transfer pricing reference guide 2014

Turkey
Taxing authority and tax law
Tax authority: Ministry of Finance
Tax law: Transfer pricing is regulated by Article 13 of the Corporate Tax Code numbered 5520, published on 21 June 2006.
Article 13 of the Corporate Tax Code states: “Income shall be considered to have been wholly or partially distributed in a disguised
manner through transfer pricing, if the company engages in purchase of goods and services with related parties at prices or at amounts
which they determine do not comply with the arm’s length principle.”
Transfer pricing provisions have been effective since January 2007.
Relevant regulations and rulings
There are two cabinet decrees published in December 2007 and April 2008. Further, two communiqués have been issued by the Ministry
of Finance, the “General Communiqué on Disguised Profit Distribution by Means of Transfer Pricing Serial Nos. 1 and 2.” Additionally,
the Revenue Administration issued guidance in 2009 regarding mutual agreement procedures, and in 2010 regarding disguised profit
distribution through transfer pricing.
There are some rulings related to the indirect tax aspect of transfer pricing adjustments. Additionally, there is a court case that highlights
the Tax Court’s position, with respect to the use of databases for transfer pricing documentation purposes. The Tax Court rejected the
use of the Amadeus database for benchmarking studies on the grounds that the database does not contain any Turkish comparable
companies, but only provides information on the companies located throughout Europe, or a “pan-European” comparable set. The court
decision is limited to the specific facts of the case; however, it has raised questions about whether it is appropriate to use the Amadeus
database in transfer pricing documentation (Rep. of Turkey, Istanbul, 11th Tax Court Decision, E. 2009/3169, K. 2010/2091).
A large number of court cases exist on the subject of disguised profit distribution. They are mostly conflicting, and fail to establish a body
of case law binding to all the parties. Moreover, during transfer pricing inspections, tax auditors focus mostly on intercompany payments
in form of royalties, management fees, and cost allocations. At the end of these inspections, tax auditors either reject the deductibility of
these payments, claiming that they are, in fact, distributions of profit, or re-group these payments as royalties, so that they may assess
withholding taxes.
OECD Guidelines treatment
The preamble to the law states that the provisions of international regulations, especially the OECD Guidelines, are taken as a reference.
However, there is no particular reference to the OECD Guidelines in the actual content of the regulations, including Article 13 of the
Corporate Tax Code, the related decrees and communiqués. In addition, the law diverges from the OECD approach on two major points:
first, the term “related party” is broadly defined (e.g., it includes all shareholders, regardless of the level of interest), and second, it also
applies to domestic related party transactions.
In local transfer pricing rules, there is no reference to business restructurings. However, there are strict provisions in local tax codes
regarding anti-abuse rules and the substance-over-form principle.
In general, transfer pricing rules place significant documentation and disclosure requirements on Turkish taxpayers, but during transfer
pricing inspections, it seems that fulfilling these requirements does not provide any assurance to taxpayers. It would not be wrong to
state that the tax auditors are still not fully aligned with the OECD Guidelines, and that there is a very strong tendency towards using the
CUP method despite difficulties in comparability as well as the fact that the regulations endorse all the transfer pricing methods listed in
the OECD Guidelines.
Priorities/pricing methods
Taxpayers can use the following methods to prove that the prices charged in their transactions with related parties are arm’s length:
CUP, Resale Price and Cost Plus. If it is not possible to reach the arm’s length price through one of these traditional methods, profit-based
methods such as Profit Split, TNMM and other methods determined by the taxpayers can be used.
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