President Decree ("Decree") on the Amendment of the Decision on Disguised Profit Distribution Through Transfer Pricing entered into force after being published in the Official Gazette dated February 25, 2020 and numbered 31050. Article 19 of the related Decree has been changed together with its title and also Article 19/A titled "Documentation and Remission" has been added to the same Decree. Pursuant to 19th Article of the Decree titled "Documentation"; The certification consists of a master file, local file, and a country by country report.

1) Master File

The master file includes the organizational structure of the multinational group of company, the definition of the company's operating activities, intangible rights, intra-group financial transactions and tax status.

Resident corporate taxpayers in Turkey who are included in the multinational group of companies, attached to the corporate tax declaration for the previous accounting period and having the asset size in both balance sheet and the net sales amount in the income statement amounting to TRY 500 million and above, are obliged to prepare a master file to submit to the Ministry of Finance Revenue Administration ("Administration") for the accounting periods starting from and after 2019.

The first master file shall be drafted with respect to 2019 accounting period for companies subject to regular accounting periods and periods starting after January 1, 2019 for companies subject to special accounting periods. The master file is required to be produced by the end of the accounting period following the relevant accounting period.

It is obligatory to submit the master file to the Administration or to those authorized to make a tax examination, if requested after preparation period ends.

2) Local File

Local file contains detailed information on the transactions with related companies conducted by the Turkish-resident company of a multinational group of companies. Local file is obliged to be drafted until the deadline of the corporate tax declaration and if requested after such period expires, it is obligatory to submit to the Administration or to those authorized to make a tax examination.

a. Preparation of Local File in Accordance with Taxpayer Status and Related Transaction:

Taxpayers shall produce a local file for the following transactions:

  • Domestic and international transactions conducted with related parties within one accounting period by taxpayers registered at the Directorate of the Large Taxpayer Office,
  • Domestic transactions conducted with related parties within one accounting period by corporate taxpayers other than those registered at Directorate of the Large Taxpayer Office,
  • Transactions conducted with related parties by corporate taxpayers operating in free zones,
  • Transactions conducted with foreign branches and related parties located in free zones by all corporate taxpayers.

Apart from taxpayers registered at the Directorate of the Large Taxpayer Office and corporate taxpayers operating in free zones, there is no obligation to prepare local file for domestic transactions conducted by taxpayers with related parties and domestic and international transactions conducted by income taxpayers with the related parties. However, it is obligatory for taxpayers to present the information and documents with respect to these transactions, which should have been included in the said report, to the Administration or those authorized to conduct tax examination, if requested.

3) Country by Country Report

Information such as income per country, in which the multinational group of companies operates, profit/loss before tax, income/corporate tax paid/accrued and information on capital and various commercial activity criteria are included in the country by country report.

The country by country report shall be drafted and electronically submitted to the Administration until the end of December following the relevant accounting period by the resident parent company of multinational companies (by one enterprise on behalf of others in case there are multiple enterprises in Turkey), in case the parent company of a multinational group with a consolidated group income of 750 million Euros and above resides in Turkey. In case there is a problem with regards to information sharing for reporting or the country, in which the parent company resides; then the Turkish company in the group of companies fulfilling the criteria shall submit the report to the Administration.

In case consolidated financial statements are composed in a currency other than Euro, the average of foreign exchange buying rates determined by the Central Bank of the Republic of Turkey (CBRT) for the accounting period preceding the reported period shall be taken into consideration in the calculation of the aforementioned rate.

The first country by country report is required to be submitted to the Administration until December 31, 2020 for the 2019 accounting period. In case the ultimate parent company of a multinational group of company is subject to a special accounting period, then the first county by county report shall be drafted for the periods starting after January 1, 2019 and electronically submitted to the Administration until the end of December following the relevant special accounting period.

Affiliates of groups of multinational enterprises falling under the scope of the law shall notify the Administration by the end of August 2020 on whether they are the ultimate parent company or a deputy company, the enterprise that will do the reporting on behalf of the group and information with regards to accounting period. The information regarding subsequent years shall be submitted to the Administration before the end of June each year.

4) Documentation and Remission

In accordance with Article 19/A of the Decision, for taxes not accrued in time or inappropriately accrued due to profits distributed disguisedly, tax penalty shall be applied with 50% discount, provided that the documentation obligations regarding transfer pricing are duly fulfilled in full and on time. However, the cases, where tax loss is caused through the acts set forth in Article 359 of the Tax Procedure Law, are excluded from the application scope of such remission.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.