INSIGHT: New Requirements for Country-by-Country Reporting in Turkey

The world is struggling with the Covid-19 pandemic. Every day there is more news related to this outbreak. However, many countries are trying to become normalized by relaxing the restrictions. Turkey has weakened its restrictions as of June 1, 2020.

As a result of steps taken to be normalized, businesses are getting back to their new routines. There are pending tasks to be performed and obligations to be considered. Taxpayers are trying to re-draw their road maps and strategies along with post-Covid-19 as well as new legislative developments.

One of the new rules which was introduced early 2020 relates to BEPS Action 13 and the transfer pricing documentation requirements in Turkey. The new requirements did not focus fairly on taxpayers because they were announced when the spread of the Covid-19 pandemic had just reached Turkey.

In this “new normal” world, it is time to understand what exactly the BEPS Action 13 rules are and how multinational enterprises (MNEs) in Turkey must react and be prepared. There are not any postponements in BEPS Action 13 deadlines due to the pandemic so far, so taxpayers should be well-prepared.

In a nutshell, BEPS Action 13 related transfer pricing documentation rules introduces a three-tiered documentation approach which is mainly country-by-country reporting (CbCR), master file (MF) and local file (LF). Most jurisdictions have adopted the Organization for Economic Co-operation and Development (OECD) BEPS Action 13 model into their domestic law and started implementing the new rules since 2016. On the other hand, some countries like Turkey have published draft bills; however the implementation of draft bills has been postponed until 2020, since 2020 is considered as the deadline for the OECD peer review.

Turkey has adopted the new rules with 2151 Presidency Decree in February 2020. Based on the new rules, taxpayers in Turkey are obliged to comply with new filing requirements in Turkey.

Country-by-Country Reporting

MNEs with consolidated revenue exceeding 750 million euros ($849 million) (as of 2018) are required to file 2019 CbCR until the end of 2020.

Under normal conditions, the Ultimate Parent Entity (UPE) is required to file CbCR for the group or the surrogate entity which is assigned by the UPE will file the CbCR. The tax authority will then exchange the CbCR with the tax authorities in the country where the MNE operates. This methodology enables MNEs to only file in one jurisdiction while the burden of transmitting the data rests with the tax authorities. The automatic exchange is realized through the CbCR Multilateral Competent Authority Agreement (MCAA). The MCAA is currently signed by 85 countries. For automatic exchange between countries the MCAA should be activated.

In order to track the reporting entities, the MNEs notify their respective authorities related to the information of the UPE or reporting entity of the group to ensure that the tax authorities follow who reports to whom. This is called “notification.”

In Turkey, there are notification requirements. Each eligible MNE operating in Turkey is required to make notification in Turkey to their tax office through an electronic platform. The notification will be made up to August 31, 2020 for the first year and for the following years it will be made up to the end of June. The notification form includes the detailed information of the UPE of the group, the reporting entity of the group and the Turkish entity.

With respect to the filing of the CbCR, in cases where the UPE of the MNE is in Turkey, the Turkish company will file the CbCR to the Turkish Revenue Administration. In cases where the UPE of the MNE is outside Turkey, the UPE or surrogate entity will file the CbCR to its respective tax authority.

As of June 12, 2020, Turkey has not signed the MCAA on the exchange of CbCR (CbCR MCAA). As far as we know, the procedures related to the MCAA are almost complete, however it is still not signed. Therefore in case Turkey does not sign the MCAA which will enable it to exchange information, Turkish entities of MNEs may be required to file CbCR to Turkey as well, or in case the UPE is a Turkish entity, the local subsidiaries of Turkish MNEs may be required to secondary file CbCR in their jurisdictions. In all cases, it is important to note that Turkish reporting formats are similar to OECD model formats.

All MNEs operating in Turkey with a consolidated revenue greater than 750 million euros should be ready to file their CbCR notification to the tax office by August 31, 2020. MNEs that have more than one company in Turkey and/or one selected group company can make the notification on behalf of others.

MNEs which have Turkish UPE should file the CbCR to the Turkish Revenue Authority. MNEs which have the UPE outside Turkey but have a local entity in Turkey should be ready to file the CbCR as a secondary filing in case Turkey does not sign/activate the MCAA by the end of 2020.

Master File

Turkish taxpayers which are multinationals or belonging to an MNE and have net sales and assets greater than 500 million lira ($7.3 million) as of 2018 are required to prepare an MF. The first MF will be related to period 2019 and must be prepared until the following year-end. The MF shall be submitted to the tax authorities upon request. The content of the MF is the same as OECD MF content.

MNEs in Turkey should understand and review whether their asset size and net sales for FY 2018 exceeds 500 million lira. Taxpayers should look at their corporate tax return income statements. If that criterion holds, then as a second step they should check whether their MNE has an MF and if it does, check to see if the MF includes information related to the Turkish business. In case the MF of the MNE does not cover any information related to the Turkish business, then an adoption of the MF will be required. For a Turkey-based taxpayer the MF should be prepared for the group as well.

The MF should be in the Turkish language, therefore in case the group MF is in another language, it should be translated into Turkish. For MNEs which have Turkish UPE, the Turkish MF should be translated to other languages as well since the MF will be submitted to other tax authorities as well through local subsidiaries of the group.

Local File

The LF requirement is the same as the former annual transfer pricing report and all taxpayers which have cross-border transactions (for large corporation taxpayers both domestic and cross-border intercompany transactions) have to prepare a local transfer pricing report. In addition, companies operating in free trade zones are required to prepare a transfer pricing report for their domestic intercompany transactions. The MF content is similar to the OECD MF content with some additional information required.

Conclusion

The BEPS Action 13 related requirements are explained in detail. Turkey has implemented the rules as of 2020 with the 2151 Presidential Decree. Although it is a late implementation, it is very valuable since it will allow Turkey to automatically exchange information with other countries which will enable transparency and build trust.

Başak Diclehan is a Transfer Pricing Partner at KPMG Turkey.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.