With the enactment of Presidential Decree No. 2151 published in the Official Gazette numbered 31050 and dated 25.02.2020, the preparation of a master file, a country by country report (CbCR), and a local file regarding transfer pricing has become obligatory for international companies fulfilling certain requirements. Before the Decree, only a local transfer pricing report was required. However, the Decree has now added a Masterfile and CbCR to the list of reports that must be submitted along with a local transfer pricing report. In addition to the said regulation, Turkey is adapting to OECD exercises within BEPS 13.
With Law No. 6728, the Decree has amended Article 13 of the Corporate Tax Law and:
- The definition of a related party has been detailed,
- The hierarchy of transfer pricing methods has been eliminated and the transfer pricing method appropriate for each particular transaction may now be applied,
- If the documents are submitted on time and are completed in full, a 50% discount will be applied to the tax loss penalty for taxes that are either not accrued in time or that are incomplete and derived from disguised profit distribution through transfer pricing, and
- The term of Advance Pricing Agreements has been extended from 3 to 5 years.
As per the Decree, enterprises are obliged to prepare reports that fulfill the specified criteria and other additional reports that may be demanded by the tax administration within the determined time period. If the relevant time period to submit the Master file and the local file has expired, it is obligatory to submit these reports to the tax administration or to the parties authorized to make the tax examination, if requested. According to the Decree, the reports that must be prepared are as follows:
1) Master file
Companies subject to standard accounting periods must prepare their first Masterfile for the year 2019 while companies subject to special accounting periods must prepare their first Masterfile for the accounting period after 1 January 2019.
Corporate taxpayers who fulfill both of the requirements provided below must prepare a Masterfile. Taxpayers:
- Who are part of a multinational enterprise group, and
- Who have assets totaling TRY 500,000,000 or more in their balance sheet and a net sale of TRY 500,000,000 or more in their income table, which are annexed to the corporate tax return of the prior accounting period.
The Masterfile will essentially contain 5 main categories, though the details of which will be determined by the Administration: (i) the organizational structure of the multinational company group, (ii) a definition of the Company's operating activities, (iii) the intangible rights owned by the Company, (iv) all intra-group financial transactions, and (v) the Company's financial and tax situation.
2) Local file
This report must be prepared by corporate taxpayers before a corporate tax return is submitted and must be prepared for the transactions indicated below:
- Taxpayers registered with the Directorate of the Large Taxpayer Office who conduct domestic and international transactions with related parties within one accounting period,
- Other corporate taxpayers who conduct international transactions with related parties within one accounting period,
- Corporate taxpayers who operate in free zones and conduct domestic transactions with related parties, and
- All corporate taxpayers who conduct transactions with foreign branches and related parties located in free zones.
The information and documentation that must be included in the local file are listed in the Decree. Taxpayers are not obliged to prepare a local file for the transactions stated below; however, taxpayers are required to present the information and documents related to these transactions, which should be included in the said report, to the tax administration or to the parties authorized to make the tax examination, if requested:
- Domestic transactions conducted by taxpayers with related parties, except for taxpayers registered with the Directorate of the Large Taxpayer Office and taxpayers operating in free zone areas, or
- Domestic and international transactions conducted by income taxpayers with the related parties.
3) Country By Country Report (CbCR)
If the ultimate parent company of a multinational enterprise group with a total consolidated group income of EUR 750 million or more, according to the consolidated financial tables of the prior accounting period, is a Turkish resident, then the Company must electronically submit a CbCR to the Administration before the end of the 12th month following the reported accounting period. If there is a problem concerning information sharing for reporting or with the country that the parent company is a resident of, the Turkish company in the group of enterprises must submit the report to the Administration. The required limits for the report are calculated in accordance with the average buying exchange rates determined by the Turkish Central Bank for the prior accounting period.
The CbCR must contain the following information:
- Income related to each country in which the multinational group of enterprises operates, the profit/loss before taxes, the paid income tax/corporate tax, any accrued income tax/corporate tax, capital, the previous years' profits, the number of employees, and all tangible assets other than cash and cash equivalents, and
- The name/title of the companies in the multinational group of enterprises located in each country, and if the country of establishment of the enterprise is different from the country of residence for tax purposes, the name of this country and the main activities of each enterprise.
The first CbCR must be submitted to the Administration for the 2019 accounting period before 31 December 2020. If the ultimate parent company of the multinational enterprise group is subject to a special accounting period, then it must prepare its first CbCR for the accounting period beginning after 1 January 2019 and must electronically submit the report to the Administration before the end of the 12th month following the end of the special accounting period.
Members of multinational groups of enterprises that are within the scope of the law must notify the Administration before August 2020 regarding whether or not they are the ultimate parent company or a deputy company and must provide information on the accounting period and which enterprise will be reporting on behalf of the group for the first CbCR. The information for subsequent years must be submitted to the Administration before the end of June each year.