Effective tax planning at both international and local levels must be carried out not only strategically but also in full legal compliance. In Turkey, tax planning practices are implemented within the framework of rules set by the Revenue Administration and in accordance with international standards.
In this article, we discuss the formal (legal and procedural) aspects of tax planning, including its application in Turkey.
1. What Is Tax Planning?
Tax planning is the process of legally optimizing a person’s or entity’s tax burden.It should not be confused with illegal tax evasion.
Effective tax planning is based on compliance with the law, transparency, and documentation.
2. What Does the “Formal Aspect” Mean?
The formal aspects of tax planning refer to the execution of transactions within legal and administrative rules, such as:
- Supporting transactions with legal documentation
- Correct declaration of income and deductions
- Complete and accurate accounting records
- Timely and full submission of information to the tax office
3. Formal Rules and Expectations in Turkey
Key compliance requirements for effective tax planning in Turkey include:
a) Certificate of Residence
To benefit from international tax advantages, a “Certificate of Residence” must be obtained from the Turkish Revenue Administration.
b) Proper Documentation
- Invoices, contracts, payment slips, transfer pricing reports, etc. must be accurately and transparently prepared.
- For companies, documents such as board resolutions and general assembly minutes are also important.
c) Timely Declaration and Reporting
- All income must be declared on time.
- Declarations such as VAT, Withholding Tax, Provisional Tax, and Corporate Income Tax must be filed in accordance with deadlines.
d) Transfer Pricing Compliance Report
Multinational entities are required to prepare a Transfer Pricing Report for transactions with related parties, as mandated by Turkish law.
4. International Formal Requirements
Turkey has implemented the following OECD BEPS (Base Erosion and Profit Shifting) Action Plan measures:
- Principal Purpose Test (PPT)
- Limitation on Benefits Clause (LOB)
- Multilateral Instrument (MLI) for updating tax treaties
These mechanisms aim to prevent artificial arrangements made solely for the purpose of obtaining tax advantages.
5. Common Formal Mistakes in Turkey
- Failure to formalize intercompany service agreements in writing
- Intra-group loans not aligned with arm’s length principle
- Undocumented dividend distributions
- Missing certificate of residence in contracts with foreign entities
- Not disclosing the “beneficial owner” of income
Practical Recommendations
Obtain Professional Advice
Tax planning requires specialized expertise. Incorrect declarations may lead to penalties and interest charges.
Support Tax Planning with Documentation
Every transaction should be supported by appropriate documentation. Contracts, transfer pricing analyses, and consultancy agreements must be properly maintained to mitigate potential risks.
Ensure Compliance with International Regulations
For cross-border activities, compliance with OECD standards and double tax treaty provisions is essential.
Effective tax planning requires not only strategic foresight but also strict adherence to formal legal and procedural requirements, both in Turkey and internationally. By ensuring compliance, proper documentation, and timely reporting, businesses can minimize risks and optimize their tax position.
📌 If you would like to learn more about formal aspects of tax planning or need professional support tailored to your business, you can contact ÖzbekCPA for expert guidance.
