The Presidential Decree No. 2151, published on the Official Gazette dated February 25, 2020 and No. 31050 and entered into force on the same date (“Presidential Decree“), introduced new transfer pricing documentation rules by amending the Council of Ministers’ Decree No. 2007/12888 on Disguised Profit Distribution Through Transfer Pricing.
What Does the Presidential Decree Say?
Corporate income taxpayers falling in the scope of the relevant documentation rules should prepare a “Master File” and “Country by Country Reporting” in addition to the existing annual transfer pricing report requirement.
(a) Master File
- Corporate income taxpayers that are part of a multinational enterprises group and have both previous year-end balance sheet assets and a net sales revenue in income statement amounting to TRY 500 million and above are required to prepare a Master File.
- The Master File should be prepared by the following year-end and should be submitted to the Turkish Tax Authority when requested.
- The first Master File will be prepared for the 2019 fiscal period by the end of 2020 (for calendar year). Those who are subject to a special fiscal period will prepare the first Master File for the fiscal period starting after January 1, 2019.
- The Master File will include five items: the organizational structure of the multinational enterprises group; a description of the business activities; intangible rights owned; intercompany financial transactions; and the financial and tax position of the group.
(b) Country by Country Report
- The ultimate parent company of a multinational enterprise group that is resident of Turkey is required to electronically submit a Country by Country Report to the Turkish Tax Authority by the end of the 12th month following the relevant fiscal period, if the consolidated group revenue in the previous fiscal period is EUR 750 million and above.
- The Country by Country Report must include the following:
- Revenue amount in each country where the multinational enterprises group operates; pre-tax profit/loss; income/corporate income tax paid; accrued income/corporate income tax; share capital; previous years’ profits; number of employees; and cash and tangible assets other than cash equivalents.
- For each entity belonging to the multinational enterprises group and on a country basis, the name of the entity resident in the relevant country; if the country where the entity was incorporated and the country where it is tax resident are different, the name of this country; and the main field of activity of each entity.
- The first Country by Country Report must be submitted to the Turkish Tax Authority by December 31, 2020 for the 2019 fiscal period. The ultimate parent company resident in Turkey that is subject to a special fiscal period will prepare the first Country by Country Report for the fiscal period starting after January 1, 2019 and will submit it to the Turkish Tax Authority electronically by the end of the 12th month following the relevant special fiscal period.
- Multinational enterprises group members falling in the scope of the new documentation rules should notify the Turkish Tax Authority as to whether they are the ultimate parent company or surrogate reporting entity; which entity will make the report on behalf of the group; and any relevant information regarding the fiscal period by the end of the six months following the effective date of the Decree (August 31, 2020) for the first reporting. For the following reporting periods, companies should submit their notifications by the end of June of each year.
The amendments to the transfer pricing documentation rules under Turkish tax legislation are now in line with the OECD’s BEPS Action Plan 13.
We expect the Revenue Administration to determine the details about the Master File and Country by Country Reporting through future secondary legislation.