On 9 August 2016, Law No. 6728 (the Law) on Improving Investment Climate, amending various laws, was published in the Official Gazette.
Articles 44 and 59 of the Law provide amendments to transfer pricing rules. These amendments are summarized below.
- Definition of "related party": article 59 of the Law requires a 10% shareholding for the "related party" definition. The Law adds the following provision to article 13(2) of the Corporate Tax Law (Law No. 5520): "In order to treat the cases where the relation is created through direct or indirect shareholding as disguised profit distribution, there must be at least 10% shareholding, voting or dividend rights. In cases where there is at least 10% voting or dividend rights directly or indirectly without any shareholding relation, parties shall still be treated as related parties. These ratios shall be considered as a whole for related parties."
- Transfer pricing methods: article 59 of the Law adds the Transactional Net Margin Method and Profit Split Method to transfer pricing methods which are provided and explained by article 13 of the Corporate Tax Law. With this amendment, a hierarchy order no longer applies with respect to the transfer pricing methods based on the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Authorities.
- Retroactive application of advance pricing agreements (APAs): article 59 of the Law provides retroactivity for APAs by adding the following provision to article 13(5) of the Corporate Tax Law: "The Taxpayer and Ministry can ensure the application of the designated method to previous taxation periods that have not lapsed by including the periods in the scope of the agreement provided that it is possible to apply the penalty and correction provisions of Tax Procedures Law and the conditions of the agreement are also effective in those periods. In this case, the agreement shall substitute the petition on notification mentioned in the relevant provisions, and declaration and payment transactions shall be consummated accordingly. The taxes paid previously shall not be rejected and refunded due to the application of the agreement to previous taxation periods."
- Tax penalty reduction: article 59 of the Law provides a tax penalty reduction by adding the following paragraph as the eighth paragraph to article 13 of the Corporate Tax Law: "In circumstances where transfer pricing documentation obligations are fulfilled completely and in due time, loss of tax penalty arising from under assessed or past due taxes by reason of disguised profit distribution will be imposed with a 50 percent discount (excluding the states which give rise to loss of tax through acts worded in article 359 of Tax Procedure Law)."
- Deduction of VAT due to transfer pricing adjustments: article 44 of the Law amends article 30 of the Value Added Tax Law entitled "Non-deductible VAT". With this amendment, VAT paid as a result of transfer pricing adjustments is excluded from the scope of article 30 of the Value Added Tax Law.
The amendments entered into force on 9 August 2016.