On March 16, 2016, the Turkish Revenue Administration issued draft General Communiqué No. 3 (the “Communiqué”) that, once finalized, would expand certain legal requirements and would introduce new transfer pricing documentation rules that generally follow the BEPS Action 13 recommendations, and provide for country-by-country reporting (CbCR).
The Communiqué introduces additional transfer pricing documentation requirements, including a local file, master file and CbCR.
Under proposed Section 7.1.2 of the Communiqué, all group entities that are tax residents in Turkey would be required to prepare a local file for transactions exceeding TRY 30,000. Companies with a turnover and minimum asset value at the end of the previous fiscal year of TRY 100 million would be required to submit a form providing detailed information regarding related parties and related-party transactions.
Under proposed Section 7.1.1 of the Communiqué, companies that are part of a multinational group having (1) an asset value of a minimum of TRY 250 million at the close of the previous fiscal year and (2) a turnover of TRY 250 million or more would be required to prepare the master file by the end of the second month following the due date for filing the corporate income tax return.
The master file would include five categories: (1) organizational structure; (2) definition of business operations; (3) intangible assets; (4) intra-group financial transactions; and (5) tax and financial status of the group.
- Legal and ownership structure, depicting the geographical locations of the company.
Description of business operations
- Description of how the company makes profits.
- Diagram of supply chain depicting basic products and services.
- Research and development (R&D) services between members of the group.
- Main geographic markets where major products and services are located.
- Significant assets used and risks assumed.
- Significant acquisitions and sales transactions.
- Description of transfer pricing policies related to the group’s intangible assets.
- Location where intangible assets are developed.
- Overall strategy of the group with respect to ownership and use of intangible assets.
- Cost sharing agreements and list of major contracts between related parties related to intangible assets.
- Rights arising from intangible assets.
Intragroup financial transactions
- Financial agreements with related and unrelated parties.
- Description of the company that maintains the central finance function for the group.
Financial and tax status of the group
- Description of financial reporting, regulatory, internal management, tax or other consolidated financial statements prepared for the group.
- List of unilateral advance pricing agreements in force.
Under proposed Section 7.1.3 of the Communiqué, ultimate parent companies that are tax residents of Turkey and have a minimum consolidated turnover of TRY 2.37 billion would be required to prepare and provide a CbCR. If the fiscal year of the group begins on January 1, 2016, the corporate group would need to file the CbCR by December 31, 2017.
The CbC report would contain the following information:
- Amount of revenue in each country where the group operates, pre-tax profit/loss, income and corporation tax paid, accrued income and corporation tax, nominal share capital, retained earnings, number of employees, and cash and tangible assets other than cash equivalents.
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