What are Turkey's transfer pricing rules and thresholds?

Turkey's transfer pricing regime is aligned with OECD guidelines and has been progressively strengthened since 2007. Non-compliance is a significant audit risk for multinational businesses operating in Turkey.

Legal framework Transfer pricing in Turkey is governed by: - Kurumlar Vergisi Kanunu Article 13 (the primary rule: arm's length principle) - Transfer Fiyatlandırması Yoluyla Örtülü Kazanç Dağıtımı Hakkında Genel Tebliğ (GIB General Communique on Transfer Pricing, periodically updated) - Presidential Decree No. 2151 (Base Erosion and Profit Shifting — BEPS Action 13 implementation)

Who is a 'related party' Related parties include: - Parent, subsidiary, or sister companies (where one entity holds 10%+ ownership or voting rights in the other) - Individuals related to the controlling shareholder (spouse, parents, children, siblings) who have business relationships with the company - Entities controlled by the same individual/family group - Turkish permanent establishments of foreign companies

The arm's length principle All transactions between related parties must be priced as they would be between unrelated parties in comparable circumstances. This applies to: - Sales of goods and services - Intercompany loans (interest rates must be market rate) - Royalties and technology transfer fees - Management fees and cost allocations - Service agreements

Accepted pricing methods Turkey follows the OECD hierarchy: 1. Comparable Uncontrolled Price (CUP) — preferred where comparable transactions exist 2. Resale Price Method 3. Cost Plus Method 4. Transactional Net Margin Method (TNMM) — most commonly used in practice 5. Profit Split Method

Documentation thresholds - TRY 30,000 per related party per year: trigger for basic documentation requirement - Transactions below TRY 30,000: no formal transfer pricing documentation required, but arm's length pricing still applies - Above thresholds: prepare a Transfer Fiyatlandırması Raporu (Transfer Pricing Report) covering: description of transactions, selected method, comparable analysis, and arm's length determination

Annual Disclosure — Kurumlar Vergisi return All related-party transactions (regardless of amount) must be declared in Form No. 2 (Related Party Transactions Form) attached to the annual Kurumlar Vergisi return. This covers: nature of transactions, amounts, currencies, and the transfer pricing methods applied.

Three-tier documentation (BEPS Action 13 — large groups) For groups with EUR 750 million+ consolidated revenue: 1. Country-by-Country Report (CbCR): filed by the parent entity, reporting group revenue, profit, tax paid, and employee counts by country. Turkish subsidiaries of foreign groups must notify GIB of the parent entity filing the CbCR. 2. Master File: group-level documentation of global business structure, IP, and intercompany transactions 3. Local File: Turkey-specific detailed documentation of local entity transactions

Penalties for non-compliance If the Revenue Administration determines that transactions were not at arm's length and profit was distributed to a related party (Örtülü Kazanç Dağıtımı): - The excess payment is disallowed as a deductible expense - It is reclassified as a deemed dividend distribution - Dividend Stopaj (15%) applies on the reclassified amount - Vergi Ziyai Cezası (1× the tax) plus Gecikme Faizi applies

Advance Pricing Agreements (APA) Turkey has an APA program allowing taxpayers to agree transfer pricing methodologies with GIB in advance for specific transactions. Unilateral APAs (with GIB only) and bilateral APAs (with GIB and a foreign tax authority) are available. APAs provide certainty but require significant upfront documentation and time investment.