Worldwide transfer pricing reference guide 2014

Turkey (continued)
Return disclosures/related party disclosures (continued)
• Name or title of the local related party
• Taxpayer identification number
• Name of the foreign related party and the country in which it resides
Other required disclosures include the sale and purchase of commodities both in the form of raw material and finished goods, the lease
of any property, construction services, research and development, commission-based services, all related party financial transactions,
including lending and borrowing funds, marketable securities, insurance and other transactions, and intra group services. Taxpayers
must also disclose the transfer pricing methods applied in the related party transactions.
Transfer pricing-specific returns
Taxpayers are required to submit a transfer pricing form detailing related party transactions. This form should be submitted as an
attachment to the corporate income tax return.
In the transfer pricing form, the taxpayer has to disclose information on its related parties (both domestic and international) that engage in
intercompany transactions with the taxpayer, the nature (purchase of raw materials, licensing of intangible assets, etc.) and amounts of the
transactions, as well as the total amount of intercompany transaction(s) priced at each transfer pricing method applied by the taxpayer.
Frequency of tax audit and transfer pricing scrutiny by the tax authority
For medium-and large-sized multinational firms, the likelihood of an annual tax audit is high. Most large-sized multinationals are
handled by a specific tax office (Large Taxpayers Tax Office), which requests information from these taxpayers throughout the year.
Also, taxpayers in sectors including pharmaceuticals, telecommunications, banking and finance, and automotive are often continuously
audited. Moreover, most of the tax revenue in Turkey is generated through indirect taxes; thus, companies subject to excise taxes are
usually subject to closer examination.
The risk of transfer pricing scrutiny during a tax audit is high, as tax inspectors generally focus on related party transactions.
The frequency of transfer pricing audits has increased and these audits are mainly focused on intra-group charges, such as management
fees and cost allocations. Tax inspectors often look for whether specific services or projects were provided to the recipient under
management services or not (e.g., preparation of a procurement agreement, redesign of compensation policy or legal advisory for a
court case). If the service charges are not documented with specificity to the type of service being provided to the Turkish entity, then
they are likely to be treated as royalties (and therefore, subject to withholding tax), based on the claim that industrial or commercial
experience is used.
The likelihood of a challenge to the transfer pricing methodology is similarly high. Tax auditors have continued to conduct transfer pricing
audits in the pharmaceutical sector, for the active pharmaceutical ingredient prices imported from group companies. In these tax audits,
tax auditors have basically rejected the transfer pricing methods applied by the taxpayers and assessed tax and penalties by using the
CUP method.
APA opportunity
A bilateral, unilateral or multilateral APA is possible upon the request of the taxpayer. In principle, the agreed-upon method is binding
throughout the APA term, which is three years, with the possibility of a three-year extension.
APA applications are allowed only for cross-border intercompany transactions, and the Revenue Administration has concluded only three
APAs as of January 2014.
Expected reaction to OECD Report on BEPS
Turkey uses the OECD’s commentaries as a source for interpreting tax treaties. The preamble to the Corporate Tax Code states that
the provisions of international regulations, especially the OECD Guidelines, are taken as a reference for transfer pricing regulations.
There is no immediate impact of BEPS on the legislation or the tax administration practice. However, BEPS provisions are in line with the
approach of Turkish tax policy in a general sense. It is expected that Turkey will continue its efforts to develop its international tax policy
and will likely make reference to the BEPS initiatives.
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