Submission Deadline of First Notification of Country-by-Country Reporting Extended
Recent Development
The Presidential Decree No. 2151, published in the Official Gazette dated February 25, 2020 and No. 31050, and which entered into force on the same date (“Presidential Decree”) amended the Council of Ministers’ Decree No. 2007/12888 on Disguised Profit Distribution through Transfer Pricing, whereby new transfer pricing documentation rules were introduced.
It was stipulated in the aforementioned Presidential Decree that the members of multinational group of enterprises in scope would be obligated to notify the Tax Administration as to whether they were in the position of an ultimate parent company entity or a surrogate entity; which entity would be reporting on behalf of the group; and any relevant information about the accounting period, by the end of the sixth month following the publication of the Presidential Decree (end of August 2020) for the first country-by-country report. The Tax Administration is authorized to postpone the periods set forth in the provision for up to six months.
Pursuant to this authorization, the Tax Administration resolved the details for the notification form for the country-by-country report in the General Communiqué on Disguised Profit Distribution through Transfer Pricing (Serial No. 4), which was published in the Official Gazette dated September 1, 2020 and No. 31231 (“New Communiqué”).
The New Communiqué states the notification form for the country-by-country report must be submitted by 23:59 on October 30, 2020, to be exclusive to the accounting period of 2019 and the special accounting period commencing as of January 1, 2019, in accordance with the contents of the attachment of the General Communiqué on Disguised Profit Distribution through Transfer Pricing (Serial No. 1) (“General Communiqué“) (Annex-5) and the explanations provided in the online tax office, and must be submitted electronically to the online tax office.
In subsequent years, the notification form for country-by-country reporting must be submitted to the Tax Administration by the end of June of each year. In addition, country-by-country report for the 2019 accounting period will be submitted to the Tax Administration by 31.12.2020.
Other Regulations under the New Communiqué
The other regulation alteration under the New Communiqué include:
- Section 1 of the General Communiqué titled “Legislative Regulations” was amended to reflect the current version of Article 13 of the Corporate Income Tax Law.
- The “Related Party” section of the General Communiqué was amended to reflect the current version of Article 13 of the Corporate Income Tax Law, and examples on 10% partnership, voting and profit sharing requirement where the relationship is directly or indirectly established through partnership were provided.
- The General Communiqué addressed the issues of (i) the arm’s length price or values determined by utilizing the most appropriate method, in terms of the nature of the transaction, among the comparable uncontrolled price method, cost plus method and resale price method (referred to as the traditional transaction methods), and profit split method and transactional net margin method (referred to as the transactional profit methods); and (ii) that there is no order of priority between these methods.
- Section 6 of the General Communiqué titled “Advance Pricing Agreement” was amended in order to reflect the current version of the Council of Ministers’ Decree No. 2007/12888 on Disguised Profit Distribution through Transfer Pricing.
- Section 7 of the General Communiqué was amended, and detailed explanations on the new transfer pricing documentation obligations imposed with the Presidential Decree were provided.
- Section 8 of the General Communiqué titled “Penalties” was amended, together with its section heading, and explanations regarding a 50% discount on tax loss penalties applicable on the condition of the transfer pricing documentation obligations being fully and timely satisfied, were provided. The discounted penalty is inapplicable if the tax loss is caused by acts set forth in article 359 of the Tax Procedure Law (within the scope of tax evasion).
- In the event that the overseas related party distributes the right to use the intangibles purchased thereby to the group company in Turkey within the scope of intra-group services through cost sharing, the payment to be effected to the overseas related party would also be accepted as payment for the right to use intangibles.
- The Transfer Pricing, Controlled Foreign Corporations and Thin Capitalization Form, which is attached to the corporate income tax return, would include the “purchase or sale of goods or services with a total net amount of TRY 30,000 and above for each related party in the accounting period concerned”.
- Additional annexes regarding new transfer pricing documentation obligations were attached to the General Communiqué.
Conclusion
In order not to provoke any penalties regarding the new transfer pricing documentation obligations and to benefit from the 50% discount on tax loss penalties in a possible tax assessment, the detailed explanations and examples provided in the New Communiqué in this regard should be meticulously analyzed.
