Tax Law Articles

Dear Readers,

As a legal professional with 25 years of experience specializing in tax law and corporate law, I am delighted to present this e-newsletter, which aims to provide practical insights into the key challenges faced by the business world.

Tax law is one of the most critical areas where businesspeople must exercise caution when making strategic decisions. To this end, the articles in this newsletter are designed to be clear, concise, and accessible, avoiding complex technical details to ensure ease of understanding.

The articles included in this e-newsletter contain general explanations and do not provide specific legal advice for particular situations. It is crucial to consult a legal and tax professional for any tax law-related issues. Failing to seek expert advice can lead to both legal and financial risks.

Our article topics are as follows:

1. Resolution of Tax Disputes and Settlement Procedures
2. VAT Exemptions and Refunds Practice Examples Related to Recent Developments
3. The Role of the Turkish Legal System in Combating Tax Evasion
4. Investment Incentives and Tax Advantages A Guide for Investors
5. Double Taxation Agreements and Their Impact on Turkish Tax Law
6. Taxation in E-Commerce and the Digital Economy Turkey’s Legal Approach
7. Current Amendments to the Income Tax Law and Implementation Areas
8. Transfer Pricing and Benchmarking Analysis in Turkey
9. Tax Amnesty and Restructuring Laws Advantages and Risks
10. Risk Analysis and Defense Strategies in Tax Audits

Lastly, we would like to emphasize that the articles in this e-newsletter are protected under copyright laws and cannot be reproduced without permission.

Wishing you a pleasant reading experience.

Sincerely,

Ayşegül Akbal.

Article 1

RESOLUTION OF TAX DISPUTES AND SETTLEMENT PROCEDURES

Disputes arising from tax law mostly arise from faulty or incomplete practices between taxpayers and tax administrations.

Tax disputes arise especially in tax liability, penalty accrual, additional tax and collection processes. Disputes related to tax liability generally arise from the following reasons: Incorrect determination of the tax base, misinterpretation of the law, violation of the principle of legality, incorrect determination of the amount of tax levied, errors in exemption and exception applications. Disputes related to penalty accrual are related to tax offenses and penalties. Disputes related to collection arise when the taxpayer or the person responsible objects to the notification of the payment order that the debt does not exist, has been paid in part or in full, or that the debt has expired.

There are various solutions between the taxpayer and the tax administration for the elimination of disputes and collection of tax receivables.

1. RESOLUTION OF TAX DISPUTES AT THE ADMINISTRATIVE STAGE

Under Turkish tax law, the settlement of tax disputes between the tax administration and the taxpayer through mutual goodwill and settlement or through the internal audit mechanisms of the administration is called “administrative resolution of tax disputes”. This method offers various advantages in terms of resolving disputes without going through the judicial process.

These advantages are as follows:

1. • End the dispute in a short time,
   • Ease of payment of taxes and penalties for the taxpayer and acceleration of collection for the tax administration,

• • Preventing loss of time, effort and expense for both the taxpayer and the tax administration,

• • Positive development of relations between the taxpayer and the tax administration and increased mutual trust and understanding between the parties.

a. Adjustment of Tax Mistakes

Tax base mistakes, incorrect calculation of the tax amount, double accrual of the tax are considered as calculation mistakes, while mistakes in the identity of the taxpayer, incorrect determination of the tax liability, mistakes regarding the tax subject or the taxation period are considered as taxation mistakes. Likewise, mistakes in exemption applications also fall within the scope of taxation mistakes.

b. Repentance and Reclamation

Repentance and amendment are an arrangement that allows the tax administration to avoid imposing tax loss penalties under certain conditions, if the taxpayers and other persons who have committed acts that require tax loss penalties in taxes based on declaration, and other persons who participate in these acts, self-report their illegal transactions to the tax administration. This practice allows taxpayers to correct their mistakes and allows the tax administration to collect the tax without imposing penalties.

c. Reduction in Penalties

In order to minimize the disputes that may arise between the taxpayer and the tax administration and to reduce the costs of the judicial process to both the tax administration and the taxpayer, it is accepted to reduce tax penalties under certain conditions. This regulation aims to alleviate the financial and legal burden of both parties by accelerating the resolution of disputes.

Reduction of penalties is a dispute resolution method that results in a unilateral declaration of will by the taxpayer. Therefore, the administration has no discretionary authority to reject the request for reduction of penalties. If the taxpayer fulfills the necessary conditions, he/she is automatically entitled to benefit from the reduction of penalties upon his/her application. This arrangement protects the rights of the taxpayer and ensures that the process is concluded more quickly and conclusively.

 d. Settlement

Settlement is the resolution of a tax dispute at the administrative stage by negotiation between the taxpayer and the tax administration. There are two types of settlement in our law: pre-assessment and post-assessment.

With the regulation entered into force on 02.08.2024, the tax principal has been removed from the scope of settlement. Within the scope of the settlement procedure, taxpayers may request settlement for the taxes assessed by the tax authorities and the related tax loss penalties, the taxes to be assessed based on the tax inspection and the tax loss penalties to be imposed on them, and the irregularity and special irregularity penalties exceeding the amount determined by law.

With the amendments envisaged to be made in Article 14 of the Tax Procedure Law and Article 112 titled “Special Payment Times” and Article 376 titled “Reduction in Tax Loss, Irregularity and Special Irregularity Penalties”, the tax principal is excluded from the scope of settlement in the settlement institution in the Tax Procedure Law.

Pre-Assessment Settlement

Pre-assessment settlement is an agreement process between the taxpayer and the tax administration regarding the penalties to be imposed for taxes, irregularity and special irregularity penalties. This settlement aims to resolve disputes arising during the tax inspection phase and aims to find a middle ground between the taxpayer and the administration regarding tax liabilities and penalties that have not yet been formalized.

Taxpayers under tax inspection may submit a written request for settlement at any stage ofthe inspection to the inspection staff or to the team and group head to which they are affiliated. In addition, the request for settlement should be recorded in the examination report or in case of tax examinations conducted without the taxpayer’s knowledge, the relevant examiner should invite the taxpayer to settlement. Thus, the taxpayer has the opportunity to participate in the settlement process during the tax inspection.

In the event that the pre-assessment settlement is not reached, the taxpayer is not notified of the failure of the settlement. Instead, the notification of tax and penalty notices is taken as basis. The taxpayer has the right to file a lawsuit to the tax court within 30 days after the notices are served to the taxpayer. In this process, the period for filing a lawsuit is determined according to the date of notification of the notices and the taxpayer can seek his/her rights within the legal period.

Post Assessment Settlement

After the tax penalties and irregularity and special irregularity penalties are imposed, post-assessment settlement is one of the methods that the taxpayer may apply to resolve the dispute within the administration instead of going to court. The main purpose of this method is to resolve the disputes that arise after the tax has been assessed and the penalty has been imposed by settlement between the tax administration and the taxpayer, without going to court. Postassessment settlement refers to the process of ending the dispute through settlement by reaching an agreement between the taxpayer and the tax administration, and thus, the dispute between the parties is resolved without going to the judicial authorities.

In post-assessment settlement, the taxpayer has the right to file a lawsuit before the tax court within 15 days after the notification of the minutes stating that the settlement has not been realized. However, if the settlement meeting is held before 15 days from the date of notification of the notices, the application period may be longer and eventually, the total time to file a lawsuit may reach 30 days from the date of notification. In this case, the taxpayer must take into account both notification dates in terms of the filing period in case the settlement is not realized.

2. RESOLUTION OF TAX DISPUTES AT THE JUDICIAL STAGE

In some cases, problems arising between taxpayers and the tax administration cannot be resolved by administrative means. In such cases where administrative remedies are insufficient, judicial processes naturally come into play.

The disputes that need to be addressed in the tax judiciary generally arise from the transactions carried out at the stages of tax assessment, notification and collection. These transactions include various tax regulations and practices applied by the tax administration to the taxpayers.

In addition, the imposition of penalties is also an important source of these disputes. In addition to these, taxpayers’ objections regarding the inconsistency of administrative tax regulations with existing laws or general principles of law also give rise to disputes. Therefore, tax jurisdiction is not only limited to the assessment of tax transactions and penalties but also becomes an area where the legality of administrative regulations is questioned. This situation is extremely important in terms of protecting the rights of taxpayers and ensuring a fair tax practice.

Article 2

VAT EXEMPTIONS AND REFUNDS: PRACTICE EXAMPLES RELATED TO RECENT DEVELOPMENTS

Value Added Tax (VAT) is regulated by the “VAT Law” numbered 3065, which entered into force on October 25, 1984. Articles 11 to 18 of this Law comprehensively regulate exemptions to VAT. In particular, Article 13/d of Law No. 3065 clearly states that deliveries of machinery and equipment made within the scope of an investment incentive certificate are exempt from VAT.

Article 13/d of VAT Law No. 3065 states the following: “Deliveries of machinery and equipment to taxpayers holding an Investment Incentive Certificate are exempt from VAT. However, in the event that the conditions specified in the investment incentive certificate are not met, the tax not collected on time is collected from the taxpayer by applying a tax loss penalty and collecting it with default interest. The statute of limitations for taxes not collected on time and penalties related to these taxes starts from the beginning of the calendar year following the date on which the tax arises or the situation that causes the penalty to be imposed arises.”

Although this regulation is an important advantage provided to holders of investment incentive certificates, it should be carefully monitored as it may have negative consequences for taxpayers if the conditions specified are not fulfilled.

The transactions exempt from VAT under the Value Added Tax (VAT) Law are as follows:

1. Export Exemption: This exemption, which covers the export of goods and services, also includes services provided to customers abroad, roaming services provided in Turkey and contract services in the free zone. In addition, goods taken abroad by passengers not residing in Turkey and goods and services purchased from organizations by transportation companies not based in Turkey also benefit from the exemption.
2. Exemption for Investments with Incentive Certificates: The rental, repair and maintenance of sea, air and rail transportation vehicles and port airport services provided to these vehicles are exempt from VAT. In addition, deliveries for oil exploration activities, machinery purchases of investment incentive certificate holders and purchases for defense needs are also subject to VAT exemption.
3. Transportation Exemption: VAT exemption is applied to companies headquartered outside Turkey that perform transit transportation between Turkey and foreign countries.
4. Diplomatic Exemptions: Goods and services provided to the representative offices and diplomatic staff of other countries in Turkey and deliveries made to organizations that are tax liable according to international agreements are included in this scope.
5. Import Exemption: VAT exemption applies to imports of tax-exempt goods and services, customs warehouse regimes, transit and free zone goods.
6. Other Exemptions: Service purchases made by state institutions and foundations for cultural activities are also subject to VAT exemption.
7. Simple Procedure: VAT Exemption: Within the framework of the Income Tax Law, deliveries and services of tax-exempt tradesmen and taxpayers who determine earnings in simple procedure are included in this scope.

These exemptions offer significant advantages for taxpayers, and it is important to understand the legislation correctly.

Within the framework of Value Added Tax (VAT) disputes, the most striking situation is the limitation of situations that are not explicitly regulated by law through General Communiqués.

While taxpayers perform their transactions based on the legal regulations in force, they face significant difficulties in benefiting from the exemption provisions due to the limitations in these communiqués.

In this context, General Communiqués increase the uncertainties that taxpayers may face in fulfilling their VAT obligations and thus harm the principle of predictability of the law. The limitation of situations that are not explicitly provided for in the laws by communiqués leads to the violation of taxpayers’ rights and this situation undermines tax justice. Consequently, inorder to respect taxpayers’ rights and reduce legal uncertainties, the legal basis of the communiqués should be reviewed.

In the decision of the Supreme Court of Tax Appeals Chambers dated 14.02.2024 and numbered 2022/372 E., 2024/55 K., a refund request was made with a correction declaration for the Value Added Tax (VAT) incurred due to the deliveries subject to the reduced rate, which could not be compensated through discounts. The tax office rejected the refund claim on the grounds that the claim was not filed within the period specified in Article 29 of the Value Added Tax Law No. 3065; the claimant filed a lawsuit for the cancellation of this rejection.

The Supreme Court found the refusal of the tax office in accordance with the law. In the decision, according to Article 29 of the VAT Law, it is stated that the tax that is not refunded by set-off within the year can be refunded provided that it is requested within the following year. In addition, according to the Value Added Tax General Application Communiqué, it is stated that taxpayers who do not request a refund in due time cannot request a refund by submitting a correction declaration later.

In the concrete case, it was concluded that the plaintiff did not request a refund within the legal period, and therefore it was not legally possible to request a refund with a correction declaration.

In the decision, it was also stated that the regulation of an issue that should be regulated by law with a communiqué is contrary to the principle of separation of powers; the decision was accepted as a precedent on the grounds that there is no legal basis for this limitation.

Article 3

THE ROLE OF THE TURKISH LEGAL SYSTEM IN COMBATING TAX EVASION

Tax is a compulsory and gratuitous monetary obligation that the state takes from its citizens in order to finance public services. Since taxes are one of the most important sources of income of the state, states act carefully and diligently while taxing. They expect their citizens to pay taxes in full, and in case of non-payment, they subject their citizens to certain sanctions.

Taxation authority falls within the sovereignty of states. The criminal sanctions to be applied in case of non-compliance with taxation also belong to the states. Tax offences are basically regulated in the Tax Procedure Law (TPL) and their prosecution is left to the Criminal Courts. In the Third Chapter of the Law, in the Crimes and Penalties Section, the emphasis is on Smuggling Offences and Penalties. In the Law, tax loss penalty and irregularity penalties are regulated separately from tax evasion and are separated from each other. This article will focus on tax evasion.

Tax evasion is the act of avoiding tax payments by not complying with the tax law or under-declaring the taxes due. In the presence and detection of one of these actions, people face deterrent penalties. In Article 359 of the Tax Procedure Law, smuggling offences and penalties are discussed separately. With the Law dated 29 April 2021 and numbered 7318 ‘Law Amending the Tax Procedure Law and Certain Laws’, a new group was added to thetax evasion offence. With this regulation, four different tax evasion offences and penalties have been regulated in the law.

The four tax crimes and penalties regulated in the law:

• According to Article 359/a of VUK, persons who are obliged to keep and submit records kept or issued in accordance with tax laws and who are obliged to keep and submit records shall be sentenced to imprisonment from eighteen months to five years if they cheat in the records they keep or issue misleading documents.
• According to Article 359/b of VUK, those who destroy the books and records kept in accordance with the tax laws, or who forge and use the books and documents shall be sentenced to imprisonment from three to eight years.
• According to Article 359/c of VUK, those who print and knowingly use documents that can only be printed by persons who have an agreement with the Ministry of Finance, without an agreement, shall be sentenced to imprisonment from two to eight years.
• According to Article 359/ç of VUK, any person who, although not authorized by the Ministry of Treasury and Finance, removes the seal of the payment recorder device, changes its hardware or software, or interferes with the memory units, electronic circuit elements or connection system with external hardware or software of the payment recorder device, whether authorized or not, or electronic control and audit systems or other related systems established for the prevention of unregistered sales, byphysical or informatics intervention; Those who prevent the recording of financial documents or information of the sales made in the device, change or delete the information recorded in the device, prevent the transmission of documents, information or data that should be transmitted electronically to the Ministry of Treasury and Finance or other public institutions and organizations by the payment recorder device or other connected hardware and systems or electronic control and audit systems or other relevant systems established for the prevention of unregistered sales, or cause them to be transmitted incorrectly shall be sentenced to imprisonment from three to eight years.

As it is understood, tax evasion can be committed with four different acts. In addition to its legal regulations, the Tax Audit Board, which is responsible for conducting research to reveal and prevent tax evasion in Turkish Law, is a board affiliated to the Ministry of Treasury and Finance. The main purpose of the Tax Audit Board is to identify and minimise tax evasion by conducting tax audits and to contribute to the preparation of legal regulations on tax evasion.

Conclusion

The offence of tax evasion is an issue that the state focuses on in order to protect the financial interests of the state. In the tax system based on declaration, which is preferred in our country as in many modern countries, the taxes to be paid are declared by the taxpayers themselves. In tax systems based on the declaration basis, an effective tax audit system must be established.

In order to combat tax evasion, the government has regulated penal sanctions in the Tax Procedure Law. In addition to legal regulations, the Tax Audit Board regularly conducts tax audits against organisations and individuals in order to prevent tax evasion. Recently, the importance of ‘voluntariness’ in the fight against tax evasion has been emphasised in addition to the examinations carried out by the Tax Audit Board.

Sometimes, taxpayers’ inadequate understanding of tax laws leads to misrepresentation and tax offences. Avoiding the complexity of tax laws, eliminating the uncertainties regarding the concept of tax evasion, filling the gaps in existing laws will facilitate the detection of tax evasion offences and increase deterrence.

Article 4

INVESTMENT INCENTIVES AND TAX ADVANTAGES: A GUIDE FOR INVESTORS

In the Republic of Turkey, corporate income subject to tax exemptions is determined within the framework of various incentives and sector-based regulations. In this context, the types of income that provide tax exemptions or tax deductions are listed below:

1. Tax Exemptions Provided under Investment Incentive Certificates: Tax exemptions granted for investments realized by obtaining an investment incentive certificate can significantly reduce the tax liabilities of companies.

2. Income from R&D and Innovation Activities: Within the scope of incentives for research and development and innovation activities, incomes generated from these activities are exempt from tax.

3. Tax Reductions Provided within the Scope of Employment Incentives: In line with incentives to increase employment, tax deductions provided for employment that meets certain conditions reduce the costs of employers.

4. Company Revenues Benefiting from Regional Incentives: Within the framework of investment incentives for various regions of Turkey, the income of companies operating in certain sectors may be exempt from tax in order to support regional development.

5. Income from Agricultural Activities: Income from agricultural production activities may be subject to tax exemption in line with support policies for the agricultural sector.

6. Export Revenues: Income from export activities carried out to support the national economy is exempt from tax under certain conditions.

7. Special Tax Reductions and Exemptions Provided in Certain Sectors: Special tax reductions and exemptions provided for companies operating in certain sectors offer significant advantages in terms of sectoral development and competitiveness.

Since these incomes are exempt from tax, the related companies do not declare these incomes in their tax returns and therefore are not taxed. However, it should be noted that certain conditions must be met in order to benefit from tax exemptions.

Tax incentives are offered in different areas and forms depending on the needs of enterprises and the sectors in which they operate. These incentives aim to increase competitiveness and support economic growth by reducing the costs of enterprises. Below, some types of tax incentives categorized according to their common purposes are explained:

1. Investment Incentives: Investment incentives include tax advantages provided to encourage enterprises to make new investments. These incentives can take various forms such as tax deductions, depreciation acceleration or investment allowances. By taking advantage of these incentives, enterprises can reduce their costs and increase their investments to pursue a more sustainable growth process.

2. Employment Incentives: Employment incentives include tax advantages provided to businesses to encourage them to increase employment by creating new jobs. These incentives include employer premium discounts, social security incentives and on-the-job training programs. By taking advantage of such incentives, enterprises can both create new job opportunities and indirectly reduce their costs.

3. Regional Incentives: Regional incentives are tax advantages provided to encourage investments in certain regions of Turkey. Incentives such as tax reductions, social security premium support or interest support offered to businesses located in disadvantaged regions are implemented to support the economic development of these regions. In this context, regional incentives aim to reduce economic imbalances and realize development goals.

Businesses can reduce their costs and increase their competitiveness by taking advantage of tax incentives that suit their needs. The effective use of such incentives contributes positively to both individual businesses and the overall economic structure.

The conditions to be fulfilled in order to benefit from tax incentives and exemptions are usually quite detailed and variable. This can become a complex problem for businesses. In particular, the rules of incentives applied in different sectors and regions may undergo changes and are offered subject to certain conditions.

In this context, in order for businesses to benefit from tax incentives effectively, it is extremely important to seek expert advice. Tax experts can help businesses determine which incentives they can benefit from in accordance with their specific situation and fulfill the conditions necessary to obtain these incentives. They can also provide upto- date information on changes in tax legislation, allowing businesses to make the best use of these incentives.

Therefore, it is considered a critical step for businesses to seek professional advice on tax incentives and exemptions, both to minimize tax liabilities and to manage the legal processes effectively. In this way, businesses can cope with complex tax regulations and use their financial resources more efficiently.

Article 5

DOUBLE TAXATION AGREEMENTS AND THEIR IMPACT ON TURKISH TAX LAW

Double taxation occurs when an individual or company is subject to taxation on the same income in both the source country and the country of residence. Double taxation is defined in Article 117 of the Tax Procedure Law. According to the aforementioned article, double taxation is the demand or collection of tax more than once on the same tax base for a certain taxation period in the application of the same tax law. To address this issue, countries enter into double taxation agreements (“DTAs”). Turkey has signed DTAs with numerous countries to encourage international investment andalleviate tax burdens. This article examines the impact of double taxation agreements on Turkish tax law.

Purpose of Double Taxation Agreements

The main purpose of DTAs is to prevent double taxation of international income, thereby promoting trade and investment. Turkey, aiming to increase foreign investments, has entered into DTAs based on the OECD model convention. Through these agreements, both Turkish and foreign companies can reduce their tax burden and conduct economic activities more smoothly. If a state party to the DTAs makes an overpayment in violation of the agreement, it has the right to apply for a correction and demand a refund. Thanks to these agreements, companies are more fearless to invest and trade.

Turkey’s Double Taxation Agreements

Turkey has signed DTAs with over 90 countries. These agreements outline applicable rules for both income tax and corporate tax in Turkey. In determining the tax base for non-resident foreign companies earning income in Turkey, DTAs are taken into account. Additionally, tax reductions or exemptions are provided under these agreements to alleviate the tax burden. Turkey is a party to Double Taxation Avoidance Agreements with more than 90 countries. For example; “Agreement between the Republic of Turkey and Ireland for the Avoidance of Double Taxation and Prevention of Tax Evasion in Taxes on Income and Capital Gains” published in the Official Gazette dated 10.8.2020 and numbered 27668 and entered into force on 18.8.2010 has been in force since 01.01.2011. Article 7 of the agreement regulates “commercial income” and states that “The income of an undertaking of a Contracting State shall be taxed only in that State unless that undertaking carries on commercial activities through a place of business in the other Contracting State.”

Impact of Double Taxation Agreements on Turkish Tax Law

DTAs are international agreements that have a direct impact on Turkish Tax Law. According to the provisions of Article 35 of the Corporate Tax Law and Article 90 of the Turkish Constitution, the provisions of international agreements take primacy in the hierarchy of norms since they are enacted with the approval of the Turkish Grand National Assembly. These agreements reduce the risk of double taxation on foreign investments by Turkish taxpayers, enhancing competitiveness in international trade. In terms of tax law, Turkey integrates DTAs provisions into domestic regulations, offering taxpayers various advantages. Failure to comply with the agreements constitutes a Violation of International Taxation Rules. Since the advantages provided by the DTAs are also legally protected, the parties to the agreement are facilitated in various aspects. Specifically, DTAs facilitate Turkish taxpayers by lowering withholding tax rates and reducing the risk of double taxation in dividend distributions.

Implementation and Compliance Process in DTAs

In Turkey, for DTAs to be applicable, taxpayers must submit documents to tax authorities to reduce the risk of double taxation. Moreover, foreign investors must follow certain compliance procedures to benefit from DTAs provisions in Turkey. The Turkish Tax Administration provides guidance to taxpayers to ensure proper application of DTAs and collaborates with international auditing mechanisms. The DTAs is a bilateral international agreement in the sense of international law. In Turkey, international agreements, if duly entered into force, rank the same as laws in the hierarchy of norms. Therefore, non-compliance with the duly entered into force of the DTAs has the same consequence as non-compliance with the law.

Conclusion

In order to prevent double taxation, unilateral arrangements made unilaterally in the domestic legislation of both international companies and the resident countries of the companies have not been sufficient to solve this problem. Therefore, countries have resorted to concluding tax treaties among themselves. Double Taxation Agreements play a significant role in facilitating international trade and promoting foreign investment for Turkish taxpayers. These agreements provide important advantages to Turkish taxpayers and foreign investors by reducing the tax burden. Turkey’s efforts to develop and update DTAs improve the international investment climate and contribute to economic growth.

Article 6

TAXATION IN E-COMMERCE AND THE DIGITAL ECONOMY: TURKEY’S LEGAL APPROACH

Today, with the development of technology and the impact of the COVID pandemic in 2021, online sales (e-commerce) have become very frequent and the number of people preferring it has increased, with almost one in every two people shopping online. The rapid growth of the digital economy and e-commerce has brought about significant changes and adjustments in tax systems. In Turkey, the taxation of digital activities is addressed through both the adaptation of existing tax regulations and the development of new tools specific to the digital economy.

This article examines Turkey’s approach to taxation in e-commerce and the digital economy.

E-Commerce and Digital Taxation Tools in Turkey

Turkey has introduced new regulations to tax the digital economy. The Digital Service Tax (DST), enacted through Law No. 7194 in 2020, requires digital service providers to pay a tax of 7.5% on the revenues generated in Turkey. Additionally, amendments in the VAT law have expanded VAT application to cover electronic services provided from abroad to Turkey. Taxes payable by ecommerce companies are not limited to VAT. Apart from VAT, they are liable for Temporary Tax, Annual Income Tax, Customs Duty and Stamp Duty.

Challenges in Taxation of the Digital Economy

The cross-border nature of activities in the digital economy poses a major challenge for tax authorities. In Turkey, the manner in which digital businesses generate revenue, often without the need for physical presence and through anonymous user interactions, creates significant uncertainties in taxation processes. Thus, the Turkish tax administration follows the framework of International Tax Reforms guided by the OECD and G20 to define tax obligations in the digital economy. Article 7 of the Income Tax Law stipulates that commercial income is derived in Turkey if the owner of the income has a place of business or a permanent representative in Turkey and the income is generated in or through these places or through these representatives. There is a specialization of the Revenue Administration dated 30.12.2011 on how the taxation method will be in case of sales abroad via the internet in Turkey.

Tax Compliance Obligations and Implementation Processes

Turkish regulations have tightened tax compliance processes for digital businesses. Foreign digital platforms generating income in Turkey are required to declare and be taxed on their revenue. Transactions conducted in electronic environments and the resulting income must be reported to Turkish tax authorities. These reporting requirements are designed to enhance tax transparency and minimize tax loss.

Conclusion

The taxation of the digital economy and ecommerce in Turkey is a constantly evolving area, aiming to adapt to the innovations brought by digitalization. The Digital Service Tax and VAT regulations are the cornerstones of the taxation system encompassing the digital economy. Turkey’s tax system is expected to continue taking necessary steps to ensure fair taxation of digital activities in line with global standards

Article 7

CURRENT AMENDMENTS TO THE INCOME TAX LAW AND IMPLEMENTATION AREAS

The Income Tax Law is the basic law regulating income tax in Turkey. The law regulates how the taxes payable by individuals and corporations on their income are calculated, declared and collected. Article 1 of the Law defines who is subject to income tax and provides a brief definition of income. According to the article, income of real persons is subject to income tax. Income is the net amount of earnings and revenues obtained by a real person in a calendar year.

In this article, we will focus on the recent amendments to the Income Tax Law.

Recent Amendments to the Income Tax Law

The latest amendments to the Income Tax Law are usually made during the annual budget negotiations or depending on economic conditions. Amendments are announced together with the annual budget law and published in detail in the Official Gazette. Amendments are usually focused onissues such as tax tariffs, deductions and declaration periods.

In the 9070 Presidential Decree published in the Official Gazette on 01.11.2024, it is a decision ‘On the Withholding Rates in the Provisional Article 67 of the Income Tax Law No. 193′. Withholding rate refers to the rate of tax deduction on certain types of income. This rate determines the proportion of deductions made in advance for income tax or other types of tax from taxpayers’ income. It is set by law and may be updated periodically. According to the Income Tax Law, different withholding rates may apply to different types of income. With the decision published on 01.11.2024, the rates in the provisional article 67 have been updated.

The rates determined in the decision are (7.5%) for interest and dividends to be paid for demand and special current accounts and (5%) for interest and dividends payable on time deposits and time deposit accounts. (5%) for income from bonds and lease certificates issued by banks.

The Amendment of Law No. 7524 Tax Laws and Certain Laws

The law was published in the Official Gazette dated 02.08.2024. The reason why we include this law in our article is that the published law includes some amendments to the Income Tax Law. In addition to the Income Tax Law, the Law includes regulations on a number of tax-related issues such as the Corporate Tax Law, the Tax Procedure Law, and the Value Added Tax Law. We will focus on the amendments envisaged in the Income Tax Law, which is relevant to our subject.

• The abrogated Article 69 of the Income Tax Law has been reorganized with the title “Determination of daily revenue in commercial and professional earnings and determination of income tax base” and the monthly and annual revenue amounts of the taxpayers will be determined by taking the average of the daily revenue amounts determined as a result of the surveys to be carried out before the taxpayers. The revenue amounts determined in this way will be compared with the revenue amounts declared by the taxpayers for the period in which they are operating, and if the difference found as a result of the comparison is more than 20%, the taxpayers will be invited to explain within the scope of the “invitation to explanation procedure” in the Tax Procedure Law. The regulation will enter into force on 01.01.2025.
• The abrogated Article 17 of the Income Tax Law has been revised and the portion of the fair value of the share certificates, which are given to the employees free of charge or at a discount by the employers who qualify as techno venture companies according to the criteria determined by the Ministry of Industry and Technology and which are accepted as wages, that does not exceed the amount of one year’s gross wage in that year, is exempt from income tax. The regulation entered into force on 02.08.2024.

Conclusion

The Income Tax Law constitutes an important part of Turkey’s tax system and is of great importance for finance policies. The law regulates the fundamentals of income tax by its content. Therefore, it is important to keep up to date with updates concerning the Income Tax Law. The best source for this is to check the Official Gazette. Current amendments to the Income Tax Law aim to adapt to the dynamic nature of the tax system and economic conditions. These amendments are expected to create a healthier tax practice and fair competition environment for taxpayers. It is critical for taxpayers to act in accordance with the new regulations and to use their rights consciously in order to fulfill their financial responsibilities.

Article 8

TRANSFER PRICING AND BENCHMARKING ANALYSIS IN TURKEY

Transfer pricing is a tax regulation requiring transactions for the purchase and sale of goods and services between affiliated companies to be conducted within certain rules. Considering that more than 60% of the world’s trade takes place between related parties, the extent of its impact can be more easily understood. Transfer Pricing, which was initially considered only under the heading of tax compliance, is now among the strategic issues of top management due to managing the effective tax burden, increasing transparency requirements, tax ethics debates and corporate reputation concerns. In Turkey, transfer pricing is regulated in accordance with the OECD Transfer Pricing Guidelines and the Turkish Tax Procedure Law. In this context, benchmarking analysis serves as a fundamental tool to evaluate whether companies’ transfer pricing practices align with fair market conditions.

Transfer Pricing Regulations in Turkey

In Turkey, transfer pricing is governed by Article 13 of the Corporate Income Tax Law No. 5520 and related Communiqués. These regulations mandate that transactions between related parties adhere to the arm’s length principle. Article 13 of the Corporate Tax Law states that “If the corporations purchase or sell goods or services to related parties at a price or price determined in violation of the arm’s length principle, the gain is deemed to be distributed in a disguised manner through transfer pricing in whole or in part”. In Article 3 of the Decree No. 2007/12888 on Disguised Profit Distribution through Transfer Pricing published in the Official Gazette dated 06.12.2007 and numbered 26722, transfer pricing is defined as the price or price applied in the purchase or sale of goods or services between related parties. Companies are required to conduct a benchmarking analysis on comparable transactions to establish arm’s length prices or values for related-party transactions. From a taxation perspective, transfer pricing is a “tax security instrument” enacted to prevent tax evasion. The tax administration has the authority to audit companies’ transfer pricing practices and, if necessary, impose tax assessments.

Benchmarking Analysis Process

Comparative analysis is a systematic process used to compare and evaluate an organization’s performance against industry standards or best practices. Benchmarking analysis is crucial in the context of transfer pricing. During this process, related-party transactions are compared with similar transactions conducted by independent companies. In Turkey, both local and international databases are utilized in the analysis process, and the selection of comparables and the evaluation of financial ratios are of high importance. The results of these analyses are documented in reports submitted to tax authorities, aiming to minimize transfer pricing risks.

Arm’s Length Principle and Risks

Article 13 of the Corporate Tax Law No. 5520, paragraph 3 of the article titled ‘Disguised profit distribution through transfer pricing’ mentions the ‘arm’s length principle’. According to the law, this principle states that the price or price applied in the purchase or sale of goods or services with related parties is in accordance with the price or price that would occur in the absence of such a relationship between them. It is obligatory to keep the records, tables and documents pertaining to the calculations regarding the prices or prices determined in accordance with the arm’s length principle as proof papers.

The arm’s length principle is the cornerstone of transfer pricing and aims to ensure fair market conditions in related-party transactions. In Turkey, the absence of a proper benchmarking analysis can lead to tax risks. Specifically, failure to determine arm’s length prices may result in tax base adjustments or even penalties

Conclusion

Although the liberalization of world trade and the growth of the economy have contributed to the formation of multinational companies, they have also brought some problems. Over time, companies have merged, acquired or interconnected companies in order to develop and grow. Consequently, companies have started to meet their needs from related companies and have not preferred the free market.

Transfer pricing was introduced to our tax system with Article 17 of the Corporate Tax Law No. 5422. In this article, transfer pricing is limited as ‘disguised gain’. However, it is seen that it was later reorganized with Article 13 of the Corporate Tax Law No. 5520 with an understanding that includes clearer expressions and more general rules such as the arm’s length principle and price determination method. Today, this article is still valid and has an important place in the Turkish legal system.

In Turkey, transfer pricing is strictly monitored and documented in line with international standards. Benchmarking analysis is a mandatory tool for determining arm’s length prices, ensuring that companies meet their tax obligations accurately. Compliance with transfer pricing regulations plays a significant role in mitigating potential tax risks.

Article 9

TAX AMNESTY AND RESTRUCTURING LAWS: ADVANTAGES AND RISKS

Introduction

Governments sometimes apply tax amnesties in order to facilitate taxpayers to pay their past tax debts and restructuring laws are enacted in order to implement the amnesty.

Within the scope of the principle of fairness in taxation, which is the most important principle of tax law, tax amnesty practices are a highly controversial issue.

Tax amnesty and related restructuring practices are mechanisms that can have both positive and negative effects. In this article, the advantages and risks of tax amnesty and restructuring laws will be discussed.

Advantages of Tax Amnesty and Restructuring Laws

Tax amnesty provides the taxpayer with the chance to comply with the tax system. The advantages of tax amnesty and restructuring laws can be briefly summarized as follows.

1. Increasing Public Revenues

Tax amnesty and restructuring laws help the state to increase tax revenues rapidly. Collection of unpaid taxes contributes to the improvement of the public budget and ensures the continuity of public services.

2. Economic Relief and Supporting Taxpayers

Businesses and individuals going through economic bottlenecks can alleviate their financial burdens through tax amnesty andrestructuring. The abolition or reduction of late interest and penalties makes debts more easily payable. This situation increases confidence in the economy by reducing the financial pressure on taxpayers.

3. Promoting Employment and Investments

The ease of payment of companies in difficult situations due to tax debts through restructuring reduces the risk of bankruptcy and ensures the sustainability of businesses. This indirectly leads to the protection of employment and paves the way for new investments.

4. Reducing the Informal Economy

Tax amnesty and restructuring laws can also be an effective method to formalise the informal economy. In particular, it can be ensured that businesses or individuals who have worked informally in the past are included in the system and become registered through financial regulations.

Risks of Tax Amnesty and Restructuring Laws

As it can be foreseen, the violation of the principles of justice and equality is one of the major criticisms of tax amnesties. The deterioration of the principle of equality against taxpayers who fulfill their tax obligations completely and these practices may damage the confidence of taxpayers in the tax system, which may lead to tax loss. The risks of tax amnesty restructuring laws can be briefly summarized as follows.

1. Inequality in Income Distribution

Tax amnesty and restructuring may provide significant advantages for taxpayers with large debts or those who have not paid for along time. This situation may be perceived as injustice for small taxpayers or individuals and businesses that make regular payments. Therefore, tax amnesty may cause some problems in terms of ensuring social justice.

2. The Problem of the State’s Permanent Source of Income

Tax amnesty and restructuring practices may make it difficult for the state to have a continuous and regular tax revenue. Frequent tax amnesties may create irregularities in revenue collection in the future by preventing taxpayers from gaining payment discipline.

3. Weakening of Fiscal Discipline

Tax amnesties and restructurings may adversely affect the fiscal discipline of the state. Frequent amnesty and restructuring practices may make it difficult for the public finance and tax system to operate in a stable manner in the long run. This could undermine the state’s efforts to maintain fiscal stability.

Article 10

RISK ANALYSIS AND DEFENSE STRATEGIES IN TAX AUDITS

Tax audits are official inspections aimed at evaluating the compliance level of businesses and verifying the accuracy of their declarations. In this process, risk analysis plays a crucial role in allowing audited companies to identify potential tax risks in advance and prepare accordingly. This article focuses on risk analysis methods in tax audits and defense strategies for businesses.

Risk Factors and Analysis Techniques

Key risk factors in tax audits include highvalue transactions, complex group structures, related party transactions, and past tax noncompliance. In addition to the main risk factors, tax audits may be carried out in case of sector reviews, complaints or denunciations, irregularities are detected in another company with which there is a commercial relationship, or in case of review requests by public institutions. In Turkey, businesses should create tax risk maps in line with these factors and use various analysis techniques (ratio analysis, cross-checks) to minimize risks.

Defense Strategies

Developing an effective defense strategy in tax audits is critical for businesses to avoid potential penalties. First of all, accurate and complete document submission should be ensured and business accounting should be in compliance with the relevant legislation. In Turkey, working with tax consultants and obtaining legal advice from lawyers specialized in tax law are also important defense strategies. In case of dispute, reconciliation or resorting to court may be considered. A tax inspection is not a final and enforceable action, even if its purpose and the limits of its procedure are defined in the Tax Procedure Law. Since administrative actions must be ‘final and enforceable’ in order to be subject to annulment proceedings, the tax inspection cannot be subject to annulment proceedings since it does not meet these conditions. Even if the tax inspection cannot be subject to an annulment action, a lawsuit can be filed in case of irregularities during the inspection. As for the reconciliation option, the taxpayer has the right to request reconciliation before the tax assessment against the tax penalties to be assessed on behalf of the taxpayer as a result of the tax inspection. Through reconciliation, thetaxpayer can finalize the examination process in a shorter period of time and at a lower cost. However, if there are jurisprudence certifying that you are legally right, a lawsuit is filed.

Defense Approaches in Tax Audits in Turkey

In Turkey, the defense process in tax audits should be supported by the taxpayer’s clear explanation of the audited transactions and provision of evidence. Collaboration with financial advisors and lawyers is essential for an effective defense in tax audits. Additionally, the taxpayer’s regular provision of information to the tax authority and adherence to tax obligations can strengthen the defense.

Risk analysis and defense strategies in tax audits contribute to businesses’ ability to foresee potential tax risks and be wellprepared. In Turkey, developing a robust defense strategy is crucial for businesses to enhance tax compliance and minimize penalty risk. In this context, a proactive approach to tax audits will offer businesses a significant advantage.