Turkish Tax News
Bülent TAŞ
04 May 2020Bülent TAŞ

Base Erosion and Profit Shifting Country by Country Reporting and Turkey

A. BEPS in General

Base Erosion and Profit Shifting is a Project developed by OECD and G20 in order to put an end to tax avoidance strategies that exploit gaps and mismatches in tax rules to avoid paying tax. For the purposes of dealing with international tax avoidance BEPS Package has been developed by OECD. Ultimate purpose of the project is establishing a modern international tax framework to ensure profits are taxed where economic activity and value creation occur.

Project brings together over 135 countries and jurisdictions to collaborate on the implementation of the BEPS Package. The Package includes following 15 actions.

Action 1 Tax Challenges Arising from Digitalization

Action 2 Neutralizing the effects of hybrid mismatch arrangements

Action 3 Controlled Foreign Company

Action 4 Limitation on Interest Deductions

Action 5 Harmful tax practices

Action 6 Prevention of tax treaty abuse

Action 7 Permanent establishment status

Action 8-10 Transfer Pricing

Action 11 BEPS data analysis

Action 12 Mandatory Disclosure Rules

Action 13 Country-by-Country Reporting

Action 14 Mutual Agreement Procedure

Action 15 Multilateral Instrument

We will try to summarize the steps taken by Turkey with respect to Action 13, Country by Country Reporting.

B. Action 13-Country by Country Reporting

Regarding Action 13, a report (Transfer Pricing Documentation and Country-by-Country Reporting) which has been prepared by OECD. Report provides a template for multinational enterprises (MNEs) to provide information with regard their activities in different locations and financial figures related to these activities in each location.  This information should be provided in a form of report which is called the Country-by-Country (CbC) Report.

Report includes an implementation package which consists of

  • model legislationwhich could be used by countries to require the ultimate parent entity of an MNE group to file the CbC Report in its jurisdiction of residence including backup filing requirements and
  • three model Competent Authority Agreementsthat could be used to facilitate implementation of the exchange of CbC Reports, respectively based on the:
    • Multilateral Convention on Administrative Assistance in Tax Matters;
    • Bilateral tax conventions; and
    • Tax Information Exchange Agreements (TIEAs).

C. Turkey’s Position Regarding 13 th Action

1. Local Legislation for Filing Country by Country Reporting

Although Turkey has made commitment for the BEPS action 13, very long time did not take any step regarding implementation of the package. Finally, with a Presidential decree published in 23. Feb. 2020 Turkey introduced a legislation to put parent entity of an MNE group under obligation to file the CbC Report. Legislation is in line with the three-tiered standardized approach to transfer pricing documentation that has been developed by OECD.

According to the legislation there are three reports should be presented to Tax Administration.

a. Master File

First one is General Report (Master File). General report should be submitted by Turkish resident company which is a member of Multinational Companies Group. Even if the company is a member of the said group but its annual turnover or value of the assets is less than 500 million Turkish Liras, then it is not under obligation to submit such report. Report should be submitted before the end of June following the year which is Report prepared for.

According to the legislation, general report should contain following five categories information.

  • Organizational structure of the multinational company group,
  • Description of the activities of the companies,
  • Royalties owned by group companies,
  • Financial transactions in the group
  • Financial and tax related situation

b. Local File

Second Report is the Annual Transfer Pricing Report (Local File). In fact, that is not new for the Turkish resident companies.  Obligation regarding that report is in force since the time when transfer pricing legislation introduced in Turkey.

Annual Transfer Pricing Report should be prepared by Turkish resident companies which are registered to Large Taxpayers Tax Office for their international and local transactions with related parties. On the other hand, Turkish resident companies registered to the tax office other than large taxpayer tax office should also prepare the Report for their just local transaction with related parties. Report should be prepared for each year within the period of corporate tax filing which ends April of the following year. Companies are obliged to prepare the report but don’t need to submit until its requested by tax authorities.

According to the legislation, general report should contain following information.

  • Description of the activities of the company, organizational structure of the company, shareholders of the company, capital structure of the company, legal and economic history of the company, information regarding to sector in which company operates, description (Tax identification number, addresses, phone numbers) of the related parties, information regarding ownership relations with the related parties,
  • Functions performed, risks assumed and assets used,
  • General information regarding price list of products (No detail information unless it is requested by tax authority)
  • General information regarding manufacturing cost (No detail information unless it is requested by tax authority)
  • Fiscal amounts with regard categories of the transactions that has been made with the related and non-related parties.
  • Copy of the contracts with related parties for the transactions that have been made
  • Special financial reports of the related parties,
  • Pricing policy of the group regarding transaction with the related parties,
  • İnformation regarding accounting and reporting standards used by related parties if they are different from the reporting company,
  • Information regarding ownership of the royalties and price of use or right to use royalties
  • İnformation and documentation regarding to the transfer pricing method used and reasons for the election of the method
  • Detail information regarding the calculation of the arms-length price or profit margin and related assumptions,
  • In case if arms-length price range has been determined, the method for such determinations,
  • Other documents related to arms-length price determination,
  • In case if multiyear analyses have been made to determine arms-length price, information regarding reasons for such analysis,
  • A copy of the advanced price agreements
  • Financial information used for the purposes of the implementation of the transfer pricing method.

c. Country by Country Report

Third report is the country by country report. Report should be submitted by Turkish resident final head company who is the final owners of the multinational company group. According to the description in the legislation, final head company is the company who is under the obligation of consolidating the financial report of the group in accordance with the accounting and financial reporting legislation in force.

In order to file county by country report multinational company group consolidated revenue must be above 750 million Euro. Report should be submitted for each year until the end of the following year. Report should be submitted in electronic form.

The report should contain following information.

  • Revenue derived from
  • Profit/loss before tax made in
  • Income/corporation tax paid to
  • Income/corporation tax assessed by
  • Capital attributed to
  • Previous years’ profit derived from,
  • Number of persons employed in
  • Cash and other assets situated in
  • Name title and main activities of the company resident of

each country that multinational company group operates. On the other hand, if any group member of company’s resident country and country of corporation is different than name of the country of incorporation should also being included in the report.

In case if consolidated revenue of a multinational company group exceeds 750 million Euros but final head company of a multinational group is not resident of Turkey or one of the member companies of the group is assigned to file the report and if

  • country of resident of head company does not have obligation regarding filing country by country report or
  • that country has exchange of information relation with Turkey but does not have a competent authority agreement in force with Turkey or
  • there is systematic mistake in exchange of information,

then one of the Turkish resident company of the group should file the country by country report for each year until the end of the following year.

2. Agreement for Facilitating Exchange of Information

Turkey has signed following agreements for exchange of information.

  • Multilateral Convention on Administrative Assistance in Tax Matters;
  • Tax Information Exchange Agreements (TIEAs).

Turkey also has many bilateral tax conventions (DTAs) that can facilitate exchange of information.

On the other hand, Turkey did not sign Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports.

According to presidential Decree, Turkish Revenue Administration will inform the public about competent authority agreement that has been signed. That gives the impression that Turkey prefers to sign bilateral competent authority agreements. But until now, there is no information from tax authority that bilateral competent authority agreements for exchanges under Double Tax Conventions or Tax Information Exchange Agreement has been signed.

Without competent authority agreement Turkey won’t be able to exchange the country by country reports that has been filed by its own resident company. That will prevent Turkey to receive the CbC reports from any other country. Turkey may require report from a Turkish resident member of multinational group but won’t be sure about the content of the report.

D. Conclusion

Turkey has made commitments with regard Action 13 of the BEPS. Turkey is always very supportive to the international efforts with regard fighting against tax evasion.  Turkey is the country receivingforeign direct investment. That is why it is very important for Turkey to deal with transfer pricing issues. Keeping that in mind, it is in benefit of Turkey to facilitate the exchange of information with respect to transfer pricing as soon as possible. It is really hard to understand why Turkey is very reluctant to do so.

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