TP Highlights in Turkey

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  • As an OECD member, Turkey also has TP regulations in place. Specific TP rules have been valid in Turkey as of 1 January 2007 under Article 13 of the Corporate Income Tax Code (the CIT) No. 5520 with the title 'Disguised Profit Distribution through Transfer Pricing'.
  • The regulations under Article 13 follow the arm's-length principle, established by OECD Guidelines, and are applicable to all financial, economic and commercial transactions, and employment relations between related parties. Details on the application of Article 13 are provided in a communiqué regarding disguised profit distribution through TP.
  • For the purposes of the CIT, the term 'corporation' covers:
  • - capital stock companies,
  • - cooperatives,
  • - public economic enterprises,
  • - economic enterprises of associations or foundations, and
  • - joint ventures.


 Which transactions are in the scope of TP? 


  • The transfer pricing rules apply to all types of business transactions, including:
  • - sales and purchases;
  • - manufacturing and construction;
  • - leasing;
  • - borrowing and lending; and
  • - any other transaction requiring the payment of salary, bonus or other benefits.
  • Even though intra-group services and intangible rights are not mentioned specifically in the CIT, based on General Communiqué No. 1, they will also fall under transfer pricing rules.


What are the TP methods?


The TP rules define certain methods for the determination of arm's-length transfer prices. The methods adopted are comprehensively explained by the OECD Guidelines and are as follows:

  • - Comparable uncontrolled price (CUP) method
  • - Cost plus (CP) method
  • - Resale price (RPM) method
  • The CIT states that if the above-mentioned methods cannot be used by the company in certain situations, the taxpayer will be free to adopt other methods. This means that companies can also choose other methods such as the transactional profit methods of the OECD Guidelines (namely, profit split [PSM] and transactional net margin method (TNMM)) for the determination of the arm's-length price, if they can prove that the above-mentioned traditional transaction methods cannot be used.
  • According to the General Communiqué No. 1, the other methods are defined as the following:
  • - Profit split method
  • - Transactional net margin method
  • If none of the aforementioned methods can be applied, the method determined by the taxpayer may also be used as the most appropriate method for the transactions.
  • Comparable uncontrolled price method (CUP)
  • In the CUP method, if the internal comparables are sufficient to reach an arm's- length price, there is no need to find an external comparable. If there is no internal comparable, external comparables should be used after making a comparability analysis and the necessary adjustments.
  • Cost plus method (CP)
  • In the CP method, all the direct costs and indirect costs related to service or product should be considered.
  • If there is a difference between the accounting systems of related and unrelated transaction processes, the necessary adjustments should be made.
  • Resale price method (RPM)
  • The RPM evaluates the arm's-length character of a controlled transaction by reference to the gross profit margin realised in comparable uncontrolled transactions, and is most useful where it is applied to sales and marketing operations, such as distributors.
  • Profit split method (PSM)
  • The PSM is based on the distribution of the operating profit or loss among related parties according to their functions performed and risks assumed within the contribution analysis.
  • Transactional net margin method (TNMM)
  • The TNMM is applied according to the net profit margins that are found by considering the costs, sales or any other appropriate base.

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What is the treatment for intragroup services?


  • Although in the past the law did not provide definitive legislation relating to intragroup services, the new TP article takes the OECD Guidelines as a basis. Through these developments, intragroup services may be subject to greater scrutiny under the TP regulations.
  • As per Turkish TP regulations, intragroup services refer to one of the following:
  • - The services performed by the corporate headquarters to other related- group companies.
  • - The services rendered by one group company to another.
  • These services are usually considered as services that ensure intragroup management, coordination and control functions. The costs of these services are undertaken by the parent company, a group company that is responsible for this purpose, or another group company (group services centre).
  • From the perspective of Turkish TP regulations, the following points have to be taken into consideration:
  • - Whether the service has been actually rendered.
  • - Whether the receiver company(ies) needs the service.
  • - Whether the price of those services is at arm's length.
  • Because of the uncertainty of management services and their prices, intra-group service fees are always an easy target for the tax audits to attack. The payments that fail to fulfil the above-mentioned points may be criticised from a TP point of view and may be treated as non-deductible for CIT purposes. In addition to this, in recent tax audits Turkish tax inspectors began to re-characterise the service fees paid abroad as royalty payments by claiming that those services received from related parties in fact include the transfer of know-how and accordingly criticised the taxpayers from WHT perspective.


Are cost-sharing agreements applicable? 


  • The methods for determining the price in convenience with comparables for intra-group services are determined according to related chapters of General Communiqué No. 1. However, CUP and cost plus methods are more preferable for pricing intra-group services.
  • The CUP method can be applied between unrelated parties when there is a comparable service in the market where the receiver of the service is active. This method can apply to services provided for accounting, law or computing. However, when there is no comparable price, it is more suitable to use the cost plus method. The cost basis between controlled and uncontrolled operations must be the same in order to choose this method. If the proportion of the general costs to direct costs in the controlled operation is bigger than comparable operations, it is not appropriate to conform to the profit margin acquired from that operation without making a correction on a related party’s cost basis.
  • When the CUP method or cost plus methods are not available, other methods provided under General Communiqué No. 1 can accurately determine the price convenient with comparables.
  • One must conduct a function analysis among group members while using these methods.

What are the TP documentation requirements?


  • The documentation must represent how the arm's-length price has been determined and the methodology that has been selected and applied through the use of any fiscal records and calculations, and charts available to the taxpayer.

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 What are the TP documentation requirements? 


According to the Decree (n. 2151) , TP documentation consist of 3 reports: 


Master file, country based report (CbC report) and local file.


  • Any company registered in Turkey, being a part of multinational group, with both turnover and assests of 500 m TL or more is required to prepare master file. First report should be prepared for 2019 until the end of 2020.


  • CbC report is required to be prepared by Turkish mother company of multinational group of companies of which consolidated revenue is 750 m EUR or more. First CbC report should be prepared for 2019 and submitted online to the Turkish Revenue Administation by 31.12.2020.


  •  Local file is required to be prepared for the transactions below:


  • Companies registered at Large Taxpayers Tax Office for domestic and cross border transactions with related parties
  • Other companies for cross border transactions with related parties 
  • Companies operating in free zones for domestic transactions with related parties
  • All companies for transactions with foreign branches and with the related parties in free zones



Is TP report in English acceptable? 


  • The tax authority will not accept documentation prepared on a global or regional basis. It must conform to local rules.
  • Documentation must be in Turkish. Where the requested documents are written in a foreign language, Turkish translations must be presented.