Executive summary

Turkey's Ministry of Finance has announced that amendments have been made with respect to the application process for Advance Pricing Agreements (APAs) via the General Communiqué on Disguised Profit Distribution through Transfer Pricing series no.3 (the Communiqué).

Amendments made by the Communiqué are:

• Definitions are set forth for unilateral, bilateral and multilateral APAs.
• The phase of "Pre-filing Meeting" has been added to the APA process.
• The periods granted for the APA application and assessment processes are identified clearly.
• Explanations are provided on the tax inspection processes for APAs.
• The APA rollback process is clarified.

The Communiqué was published in the Official Gazette and entered into force on 7 December 2017.

Amendments also were made to the section entitled "6 - Agreement Procedure with the Ministry of Finance, Revenue Administration" in the General Communiqué on Disguised Profit Distribution Through Transfer Pricing series no.1.

This Alert summarizes the key provisions of the Communiqué.

Detailed discussion

Definitions regarding the agreements with the Revenue Administration of the Ministry of Finance

The definitions for unilateral, bilateral and multilateral APAs are provided in Communiqué. Base on these definitions, The types of APAs are defined as follows:

• Unilateral if the agreement process is between the taxpayer and the Revenue Administration without the participation of other country tax administrations.
• Bilateral if the agreement process is between the tax administrations of two different countries or two related taxpayers under the control of these different country tax administrations.
• Multilateral if the agreement process is between the tax administrations of more than two different countries or more than two related taxpayers under the control of these different country tax administrations.

The APA process

Pre-filing meeting

If requested by the taxpayer, the availability of a pre-filing meeting with the Revenue Administration before the submission of the file is explained under the title "Pre-Filing Meeting."

Assessment and analysis

Documents and information provided to other country tax administrations under bilateral or multilateral APAs must be provided simultaneously to the Turkish Revenue Administration.

The duration for the assessment and analysis of APAs are stated as "six months" for unilateral agreements and "twelve months" for bilateral and multilateral agreements.

Acception or rejection of the APA

Applications for APAs are stated to be concluded in "nine months" for unilateral agreements and "eighteen months" for bilateral and multilateral agreements after the submission of the file to the Revenue Administration. If the application cannot be concluded during this time period, the period can be extended with the negotiation between taxpayers and the tax administrations. The administration has the right to cancel applications if required documents and information are not provided in the given time period.

Duration of the APA

The APAs can not exceed three years and are subject to the conditions and durations as stated at the beginning of the signature date of the agreement, i.e., if the application process of the taxpayer started on 2 January 2017 and is concluded with the agreement signed on 5 September 2017, the taxpayer and the administration may agree on three years with respect to the application of the APA. In such a situation, under the conditions and duration stated within the agreement, the agreement may apply for fiscal years 2017, 2018 and 2019 or it may start with fiscal year 2018.

Exceptional situations

APAs and tax investigations

If an APA application is rejected by the administration or withdrawn by the taxpayer, such withdrawal would not necessarily lead to a tax investigation of the taxpayer with respect to the APA application.

APAs and tax investigations are different processes. If a tax investigation for the transaction covered by the APA is initiated during the application process, the APA application process would continue. Similarly, during a tax investigation process, the taxpayer may apply for an APA for the transactions covered by the tax investigation process.

APA rollback applications

In connection with an application for an APA with a rollback that results in a transfer pricing adjustment, there will neither be the imposition of a deemed dividend (arising as a result of the transfer pricing adjustment) nor an associated withholding tax on such deemed dividend if the following conditions are met:

• Any corporate income tax difference related to the amount is paid on time
• In the framework of general accounting principles, the amount is added to the earnings of the related year and amended within the books of the related year
• An amount is booked as an account receivable from the related party resident abroad or as paid in cash to the entity in Turkey

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Kuzey Yeminli Mali Müsavirlik ve Bagimsiz Denetim A.S., Transfer Pricing Services, Istanbul

• Serdar Sumay
  serdar.sumay@tr.ey.com

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ATTACHMENT

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