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Legal Alerts

Turkey to introduce a new Tax Draft Law to improve the investment environment

Legal Alerts

Recent Development

In an effort to turn Turkey into an attractive investment center, the government prepared a comprehensive draft law addressing major tax issues. On June 24, 2016, the government submitted to the Turkish Parliament for adoption the draft entitled the “Law Amending Certain Laws to Improve the Investment Climate” (Draft Law).

What the Draft Law says

The most significant amendments were made in Stamp Tax Law, Value Added Tax Law and transfer pricing regulations.

Stamp Tax Law

•    According to the current Stamp Tax Law, if more than one copy of a paper is drawn up, each copy of the concerned paper is subject to stamp tax in the same amount or at the same rate. The Draft Law states, however, that stamp tax will apply to only one copy of the paper that is subject to proportional stamp tax.

•    Contractual sanction clauses, such as earnest money, forfeit money, deduction from wage and penal clause, will not trigger the levy of stamp tax, provided that they do not constitute a separate agreement on their own.

•    Under the current Stamp Tax Law, papers with regard to loans provided by banks, foreign credit institutions and international institutions, as well as those related to loan repayments and their warranties are exempt from stamp tax. With the Draft Law, this exemption will also apply to the transfer of loans provided by banks, foreign credit institutions and international institutions and to the transfer of receivables derived from these loans. Therefore, uncertainties regarding the scope of this exemption shall be removed.

•    Papers with regard to the share transfers made by joint stock companies, limited companies and partnership limited by shares will be exempt from stamp tax.

•    As to agreements that are subject to stamp tax on the cap amount, if the agreement value is increased without making any amendments to other clauses, the increased amount will not be subject to stamp tax. If, however, the clauses other than the agreement value, such as the work, parties and amounts, are amended, stamp tax will continue to be applied for the increased amount separately.

•    In parallel with the amendments made on the capital markets legislation, the Council of Ministers’ current authorization with regard to the application of 0% stamp tax to papers drawn up within the scope of capital markets legislation will be extended in a way that this rate will also apply to papers drawn up within the scope of banking legislation. In addition, the Council of Ministers’ authorization on decreasing the proportional stamp tax rates will also be extended and therefore, the Council of Ministers will be entitled to determine different stamp tax rates for different types of paper. In this way, taking into consideration the economic developments, the Draft Law will be providing flexibility to stamp tax application.

Transfer Pricing Rules

•    The scope of the “related party” concept, which is defined in Article 13 of the Corporate Income Tax Law, has been revised. Pursuant to the Draft Law, to evaluate within the scope of disguised profit distribution the cases where the relation is established through a direct or indirect partnership, it is required that at least a 10% share voting power or dividend right must be granted. If at least 10% voting power or dividend right is granted without establishing a partnership structure, the parties will still be deemed related parties.

•    In light of the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, which abolished the traditional hierarchy of traditional transaction methods that are used to apply the arm’s-length principle, the methods have been updated. Accordingly, “transactional profit methods” have also been included in Article 13 of the Corporate Income Tax Law.

•    If the taxpayer and the Ministry of Finance reach a settlement on the method to be used in transfer pricing, it will be possible to use this method in the previous taxation periods that are not barred by statute of limitations. The taxpayer will be able to benefit from the self-disclosure and correction mechanism and therefore can make a correction on their tax returns for previous fiscal periods.

•    Tax loss penalty to be applied to late or incomplete accrual of taxes due to disguised profit distribution through transfer pricing will be reduced by 50% for taxpayers who fully comply and in due time with the documentation obligations with regard to transfer pricing.

•    The Council of Ministers will be entitled to: (i) decrease the rates used in the determination of related parties to 1% or increase it to 25%; (ii) remove this requirement entirely; (iii) extend the scope documentation obligations by requesting information on the activities of related parties abroad in line with international agreements; (iv) determine the procedures with regard to the exchange of these information between the tax authorities of other countries within the scope of international agreements and (v) determine further principles and procedures with respect to transfer pricing.

Value Added Tax Law

•    According to the Draft Law, value added tax paid by the taxpayers during importation or through reverse charge mechanism within the scope of profits distributed through transfer pricing can be deducted from their output value added tax.


While it will not enter into force until the date of its official publication, we expect that the Draft Law will be adopted in July, in its current form without substantial change. Therefore, once enacted as law, affected taxpayers should be aware of the new amendments and take the necessary steps in order to benefit from the new tax reliefs.