Executive Summary
General Requirements
- The arm’s length principle applies to all financial, economic, and commercial transactions between related parties as defined under Article 13 of the Corporate Income Tax Law.
- Related party status is triggered by a minimum 10 percent threshold in shareholding, voting rights, or dividend rights, whether held directly or indirectly.
- The scope of associated enterprises includes relationships established through management, supervision, or family ties up to the third degree.
- Turkish regulations generally do not differentiate between domestic and international transactions regarding fundamental compliance obligations for associated companies.
Documentation Requirements
- A Master File is mandatory for corporate taxpayers with net sales and asset values in the preceding year each equaling or exceeding 500 million Turkish Lira.
- An Annual Transfer Pricing Report (Local File) must be prepared for all cross-border transactions as no minimum volume threshold applies to this obligation.
- Taxpayers must electronically submit a Transfer Pricing, Controlled Foreign Corporation, and Thin Capitalization Form as an attachment to the annual tax return if total annual transaction volume exceeds 30,000 TL.
- Multinational groups with consolidated revenue exceeding EUR 750 million are required to file an annual notification and a Country-by-Country (CbC) Report in XML format.
Results of Non-Compliance
- Non-arm’s length payments are reclassified as disguised profit distributions, which are non-deductible and subject to dividend withholding tax.
- Failure to provide requested documentation within a strict 15-day window allows the tax administration to determine the arm’s length price using their own discretionary parameters.
- Adjustments typically result in the assessment of unpaid corporate tax, a 100 percent tax loss penalty, and significant late payment interest.
- While timely and “proper” preparation of documentation can entitle a taxpayer to a 50 percent penalty reduction, the “properly prepared” status is determined strictly and subjectively by the tax inspector.
Country Specific Information
- Turkish tax inspectors frequently utilize secret or hidden comparables, consisting of anonymous data gathered from other taxpayers, to challenge reported profit or royalty rates.
- Any payment made by a Turkish corporate taxpayer to an entity in a jurisdiction considered a tax haven is subject to a mandatory 30 percent withholding tax regardless of the transaction’s nature.
- Entities registered with the Istanbul Large Taxpayers Tax Office and those operating in Free Trade Zones are subject to stricter documentation requirements that include domestic transactions.
- Audits prioritize companies with intragroup services from foreign headquarters, high management fees, and entities reporting continuous losses over multiple years.
Compliance Table
| Document | Deadline | Language | Thresholds, Scope & Penalties |
| Local File | End of the 4th month following FY end (e.g., April 30 for calendar year). | Turkish only. | Threshold: None. Scope: All cross-border transactions. Note: Istanbul Large Taxpayer Office and Free Trade Zone entities must also include domestic transactions. |
| Master File | End of the fiscal year following the relevant reporting period. | Turkish only. | Threshold: Sales and assets each $\ge$ 500M TL in preceding FY. Penalty: Failure to maintain “proper” (subjective) records forfeits 50% penalty reduction on adjustments. |
| CbC Notification | End of June following the reporting fiscal year. | Turkish (Electronic). | Threshold: Group revenue $>$ EUR 750M. Required for all constituent entities to identify the reporting entity; non-compliance triggers standard tax procedural penalties. |
| CbC Report | Within 12 months after the end of the group’s reporting fiscal year. | XML format (Turkish/English). | Threshold: Group revenue $>$ EUR 750M. Non-compliance results in procedural irregularity penalties and significantly increases general audit risk. |
| Other (CIT Form) | Attached to the annual CIT return (4th month following FY end). | Turkish (Electronic). | Threshold: Total annual transaction volume $>$ 30,000 TL. Scope: Both domestic and cross-border transactions, identifying related parties and methods used. |
Disclaimer: This information is obtained from secondary sources and is included for informative purposes. It should be confirmed by a local advisor.
