ADDITIONAL REPORTING LIABILITIES REGULATED FOR MULTINATIONAL CORPORATIONS WITHIN THE SCOPE OF BEPS ACTION PLAN 13 AND DRAFT GENERAL COMMUNIQUE ON DISGUISED PROFIT DISTRIBUTION THROUGH TRANSFER PRICING SERIAL NO: 3

07/12/2016

Summary:

“ Draft communique prepared for compliance with BEPS Action Plan 13 of OECD imposes additional transfer pricing documentation liabilities for MNCs. Considering the 50% deduction in tax penalty in case of complete and timely presentation of transfer pricing documents, completion of reporting liabilities are becoming more important for MNCs comparing to past.”

BEPS Action Plan 13 has been developed in order to improve the tax aspect of globalization, increase the control of tax authorities through international exchange of information and prevent MNCs from being exposed to different local tax applications. Starting from 2016, many countries adopted legislations to comply with the plan.

In this regard, Turkish Tax Authority published “Draft General Communique on Disguised Profit Distribution Through Transfer Pricing Serial No:3” on 16 March 2016. Following reporting requirements, in line with BEPS Action Plan 13, are presented in this Communique:

1. Masterfile: Masterfile contains standardized information relevant for all MNC group members regarding the group activity and transfer pricing policies. As per the communique, taxpayers whose net sales and assets amount are equal to or greater than 250.000.000 TRY will be required to prepare this documentation.
2. Local File: Within this scope, in addition to Annex-2 Form and Annual Transfer Pricing Report, taxpayers whose net sales is equal to or greater than 100.000.000 TRY will be obliged to prepare Annex-4 Form which asks for detailed information regarding the available intercompany agreements, withholding tax and reverse charge VAT application in intercompany invoices, decrease and increase in intercompany transaction volume, etc.
3. Country-by-Country Report: MNC’s whose headquarter is located in Turkey and consolidated group profit is greater than 2.037.000.000 TRY shall be obliged to prepare the CbC report. The report shall cover certain information relating to the global allocation of the MNC group’s income and taxes paid together with certain indicators of the location of economic activity within the MNC group.

Currently applied TP documentation requirements as per Turkish Tax Legislation are Annual Transfer Pricing Report and Annex-2 Form attached to the corporate income tax declaration. Along with the effective date of the draft Communique, Masterfile, Annex-4 Form and Country-by-Country Report liabilities will be introduced to the taxpayers who provide the threshold and conditions set within the Communique.

Turkish Tax Authority adopted a provision with the Law No. 6728 providing 50% deduction in tax penalty which is assessed due to disguised profit through transfer pricing for the taxpayers who prepare its TP documentation in complete and timely manner. In this regard, completion of all TP documentation requirements on time is becoming more important for MNCs.

In addition, even though no tax investigation and assessment shall be made for taxpayers who increased their corporate tax base as per Law No. 6736 on Restructuring of Certain Receivables, since dividend withholding taxes are not within the scope of the Amnesty, taxpayers’ intercompany transactions can be audited by the tax authority within in terms of corporate withholding tax. It will be in favor of the taxpayer to meet the TP documentation requirements regarding the financial years for which they benefited from the Amnesty since findings observed by the tax inspector can direct the investigations for upcoming periods.

Should you have any queries, please do not hesitate to contact us.

Ersin Nazalı Managing Partner, Attorney, SFA enazali@nazali.com.tr

Mükerrem Yanar Partner, SFA myanar@nazali.com.tr

Our explanations are not in the nature of a legal opinion and recommendation, rather they contain general information regarding the subject. Therefore, before taking an action about these issues, we recommend you to consult to an expert. No claim of responsibility can be made against NAZALI due to results deriving from the content of the document.