Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Turkey

Turkey has met all aspects of the terms of reference (ToR) for the calendar year 2017 (year in review) except for identifying and exchanging information on new entrants to the grandfathered IP regime (ToR I.4.1.3). This recommendation was also included in the prior year peer review report. Turkey is recommended to identify and exchange information on new entrants to the grandfathered IP regimes.

Turkey can legally issue one type of ruling within the scope of the transparency framework.

In practice, Turkey issued three past rulings; for the period 1 April 2016 - 31 December 2016, Turkey issued no future rulings; and for the year in review, Turkey issued eight future rulings within the scope of the transparency framework.

No peer input was received in respect of the exchanges of information on rulings received from Turkey.

Introduction

1302.  This peer review covers Turkey’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

1303.  Turkey can legally issue one type of ruling within the scope of the transparency framework: cross-border unilateral APAs and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles. Turkey notes that they are able to issue “written comments” to taxpayers on specific provisions in the tax law, but these are not binding on the tax administration or the taxpayer, and as such they are outside the scope of the transparency framework.1 In Turkey, unilateral APAs are issued by the transfer pricing unit in the headquarters of the Turkish Revenue Administration.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

1304.  For Turkey, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2014 but before 1 April 2016; or (ii) on or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

1305.  In the prior year peer review report, it was determined that Turkey’s undertakings to identify past rulings and all potential exchange jurisdictions were sufficient to meet the minimum standard. Turkey’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

1306.  For Turkey, future rulings are future rulings are any tax rulings within scope that are issued on or after 1 April 2016.

1307.  In the prior year peer review report, it was determined that Turkey’s implementation of a new system to identify future rulings and all potential exchange jurisdictions was sufficient to meet the minimum standard. Turkey’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Review and supervision mechanism (ToR I.4.3)

1308.  In the prior year peer review report, it was determined that the Turkish tax administration’s review and supervision mechanism was sufficient to meet the minimum standard. The Turkish tax administration’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Conclusion on section A

1309.  Turkey has met all the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

1310.  Turkey has the necessary domestic legal basis to exchange information spontaneously. Turkey notes that there are no legal or practical impediments that prevent the spontaneous exchange information on rulings as contemplated in the Action 5 minimum standard.

1311.  Turkey has double tax agreements in force with 85 jurisdictions which permit spontaneous exchange of information.2 In addition, Turkey has signed the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”) and it was ratified by the Turkish Parliament on 20 May 2017. The Convention entered into force on 1 July 2018 and will have effect from 1 January 2019.

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

1312.  In the prior year peer review report, it was determined that Turkey’s completion and exchange of templates were sufficient to meet the minimum standard. Turkey’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

1313.  It takes approximately 90 days from the issuance of the APA for the Turkish Revenue Administration to submit to the Competent Authority the completed template in the form of Annex C of the 2015 Action 5 Report (OECD, 2015). Subsequently, it takes eight days for the Competent Authority to send the template to the relevant exchange jurisdictions. The summary section of the template is completed in line with the internal FHTP suggested guidance.

1314.  The timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays		Any other comments
	4	0	Procedural problems.		These relate to the delayed exchanges reported in the prior year peer review report and, were exchanged by February 2017.
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority		Reasons for the delays	Any other comments
	8	0		N/A	N/A
Total	12	0

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	N/A	N/A	N/A

Conclusion on section B

1315.  Turkey has the necessary legal basis for spontaneous exchange of information, a process for completing the templates in a timely way and has completed all exchanges on time. Turkey has met all of the ToR for the exchange of information process and no recommendations are made.

C. Statistics (ToR IV)

1316.  The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	N/A	N/A
Cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	12	Germany, Italy, Netherlands, Singapore, Switzerland, United Kingdom, United States
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	N/A	N/A
Permanent establishment rulings	N/A	N/A
Related party conduit rulings	N/A	N/A
De minimis rule	N/A	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	0	N/A
Total	12

D. Matters related to intellectual property regimes (ToR I.4.1.3)

1317.  Turkey has two intellectual property regimes that are subject to transparency requirements under the Action 5 Report (OECD, 2015).3 It states that the identification of the benefitting taxpayers will occur as follows:

Technology development zone regime

• New entrants: Turkey has not yet been able to identify and exchange information on new entrants to the grandfathered IP regime, and the regime has been found to be actually harmful to the extent of extended grandfathering to taxpayers that entered the regime between 1 July 2016 and 19 October 2017. Therefore the period for enhanced transparency for new entrants on the grandfathered regime is from 6 February 2015 until 19 October 2017. The income from IP benefitting from the regime between 6 February 2015 and 19 October 2017 will be shown in a temporary tax return (specifically designed for the identification of taxpayers with respect to the enhanced transparency requirements). The information will be available to the Turkish Revenue Administration starting from mid-August 2018 including all information on new taxpayers and new IP assets of existing taxpayers dating back to 2015. This will then be exchanged as soon as possible. Turkey is recommended to identify and exchange information on new entrants to the grandfathered IP regime.

• Third category of IP assets: not applicable as the regime does not allow the third category of IP assets to qualify for the benefits.

• Rebuttable presumption: not applicable as the regime does not allow the nexus ratio to be treated as a rebuttable presumption.

5/B regime

• New entrants: as this is a new IP regime rather than a grandfathered IP regime, transparency on new entrants was not required.

• Third category of IP assets: not applicable as the regime does not allow the third category of IP assets to qualify for the benefits.

• Rebuttable presumption: not applicable as the regime does not allow the nexus ratio to be treated as a rebuttable presumption.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
Turkey has not been able to identify and exchange information on new entrants to the grandfathered IP regime. This is a continuing recommendation from the prior year peer review.	Turkey is recommended to identify and exchange information on new entrants to the grandfathered IP regime.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1.  The written comments are made available in anonymised form at www.gib.gov.tr (accessed 20 November 2018).

← 2.  Albania, Algeria, Australia, Austria, Azerbaijan, Bahrain, Bangladesh, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, China (People’s Republic of), Croatia, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Korea, Kosovo, Kuwait, Kyrgyzstan, Latvia, Lebanon, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova, Mongolia, Montenegro, Morocco, Netherlands, New Zealand, Norway, Oman, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russian Federation, Saudi Arabia, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sudan, Sweden, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Turkish Republic of Northern Cyprus, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Viet Nam and Yemen.

Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

Note by all the European Union Member States of the OECD and the European Union. The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

← 3.  These regimes are: 1) Technology development zone regime and 2) 5/B regime.