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Turkey Introduces New Transfer Pricing Documentation Rules In Line with BEPS Action Plans

Turkey Introduces New Transfer Pricing Documentation Rules In Line with BEPS Action Plans

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In 2015 the Organization for Economic Cooperation and Development created 15 base erosion and profit shifting (BEPS) action plans to equip governments to address tax avoidance by means of domestic and international rules and instruments. The purpose of the action plans is to ensure that profits are taxed where economic activities generating the profits are performed and where value is created.

In accordance with BEPS Action Plan 13, many countries have made legislative amendments in order to comply with the three-tiered transfer documentation approach, including the preparation of Master File, Local File, and Country-by-Country Reporting (CbCR) by multinational enterprises (MNEs). The CbCR is shared with tax administrations in relevant jurisdictions for the use of high-level transfer pricing and BEPS risk assessments. Therefore, many countries have signed and activated Multilateral Competent Authority Agreements (CbCR MCAA) which enable the automatic exchange of CbCRs between tax authorities. In line with the BEPS Action Plans, a new presidential decree, numbered 2151 (the “Decree”) was published in Turkey’s Official Gazette dated February 25, 2020 making some amendments to transfer pricing documentation obligations. In particular, Master File and CbCR obligations now exist for taxpayers who exceed specified limits. As a result of the new amendments, transfer pricing documentation obligations in Turkey shall cover: (i) Local Files; (ii) Appendix 2 Forms Attached to Corporate Tax Returns; (iii) Master Files; and (iv) Country-by-Country Reports.

Annual transfer pricing report obligations and relevant transfer pricing rules are valid in Turkey as of January 1, 2007 as per Article 13 of Corporate Income Tax Law No. 5520. The local filing requirements are the same as the annual transfer pricing report obligations that were already in force for taxpayers who perform intercompany transactions. The new transfer pricing documentation requirements are presented below:

Master File

Under the Decree, corporate taxpayers with assets in their balance sheet and net sales in the income statement for the fiscal period preceding the current reporting period exceed TRY 500 million are required to prepare a Master File. The Master File will consist of five main categories, including the organizational structure of the multinational group of businesses, the definitions of operating activities, the intangible rights owned, intra-group financial transactions, etc. The file should be prepared before the end of the financial year which follows the period being reported and should be submitted to the tax office or tax auditor upon request. The first financial period for which the Master File should be prepared is 2019 and it should be prepared before the end of 2020.

Country by Country Reports

Pursuant to the Decree, the ultimate parent company resident in Turkey of the MNE with consolidated group revenue exceeding EUR 750 million in the previous fiscal year is required to prepare a CbCR by the end of the year following the period being reported and share it electronically with the Tax Administration. As a rule, the CbCR targets ultimate parent entities and it may not need to be filed by the Turkish subsidiary of a multinational group. However, the Turkish subsidiary can be held responsible for submitting a CbCR to the Turkish tax office if its parent company is not obliged to prepare a CbCR in its resident country or the CbCR MCAA has not been signed by the jurisdiction where the parent entity resides or if there is a systemic error in exchange of information.

Currently, Turkey has no relevant CbCR MCAA with any tax jurisdiction. The first financial period for which a CbCR shall be prepared is 2019. Thus, unless information exchange agreements regarding the CbCR are signed and come into force before the end of 2020, Turkish subsidiaries of the MNEs will be obliged to submit CbCRs to Turkey’s Tax Authority if no time extension is granted.


From this point on, MNEs must pay attention to substance and economic reality in their group structures since all intercompany transactions of MNEs can be explicitly distinguished when CbCRs and Master Files are reviewed together. Tax authorities will be able to comprehend the “bigger picture” by analysing the MNE’s value chain, identifying if revenues and profits generated are commensurate with substance, and identifying any artificial shifting of substantial amounts of income into tax-advantageous environments. Since Turkey has no CbCR MCAA with any tax jurisdiction and the deadline for submission is the end of 2020, taxpayers do not have sufficient time to make preparations. Secondary legislation regarding transfer pricing documentation is expected to clarify the details for the processes.

By Ersin Nazali, Managing Partner, Nazali Legal-Tax Services

This Article was originally published in Issue 7.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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