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Anti-avoidance framework

Regulation

What legislative and regulatory initiatives has the government taken to combat tax avoidance in your jurisdiction?

A general anti-avoidance rule (substance over form) exists in the Turkish Tax Procedure Code. Transfer pricing rules, thin capitalisation rules and controlled foreign corporation rules constitute specific anti-avoidance rules in the Corporate Income Tax Law. In addition, the Corporate Income Tax Law authorises the Turkish government to limit interest expenses of corporate income taxpayers. However, the government has not yet used its authorisation to determine interest limitations.

To what extent does your jurisdiction follow the OECD Action Plan on Base Erosion and Profit Shifting?

Turkey is a party to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS). In doing so, Turkey has taken a key step forward to prevent tax avoidance and evasion by multinational enterprises.

On March 16 2016 the Turkish tax authorities also released Draft General Communiqué 3 on Disguised Profit Distribution through Transfer Pricing. The draft communiqué implements in Turkey the OECD’s three-tiered approach (master file, local file and country-by-country reporting) to transfer pricing documentation under BEPS Action 13. However, this legislation has not been finalised yet.

In terms of BEPS Action 1, the Turkish Value Added Tax (VAT) Law on the party liable for tax was amended in 2017. The amended article applies as of January 1 2018. The amendment stipulates that VAT arising from services provided electronically by those without a residence, workplace, headquarters or business centre in Turkey to individuals in Turkey who are not VAT taxpayers must be declared and paid by the non-resident e-service providers.

Turkey also made legislative changes in the law to reflect BEPS Action 5. Law 6728/2017 empowers the government to bring legislation in line with international standards of the BEPS Action Plan, and a cabinet decree in this regard was released. The cabinet decree regulates the technology development zones and introduced the ‘nexus approach’, an international approach introduced by the BEPS Action Plan to apply to intellectual property. Thus, the definition of qualifying IP assets was brought into line with the nexus approach.

Is there a legal distinction between aggressive tax planning and tax avoidance?

There is no legal distinction between aggressive tax planning and tax avoidance.

Penalties

What penalties are imposed for non-compliance with anti-avoidance provisions?

There is no specific penalty for anti-avoidance provisions. Taxpayers accused of tax avoidance may incur penalties such as a tax loss penalty and an irregularity fine regulated in the Turkish Tax Procedure Code.

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