Effective tax planning at both international and local levels is not only a strategic choice but also a matter of compliance with legal and formal requirements. In Turkey, tax planning practices must be implemented within the framework of the Revenue Administration (GIB) regulations and in line with international standards.
This article explores the formal aspects of tax planning with a focus on Turkish practices.
What Is Tax Planning?
Tax planning is the process of legally optimizing the tax burden of an individual or a company.
❗ It should not be confused with illegal tax evasion.
Effective tax planning is based on:
- Compliance with the law
- Transparency
- Proper documentation
Importance of Formal Aspects in Tax Planning
The “formal aspects” of tax planning refer to executing transactions in compliance with administrative and legal requirements, such as:
- Supporting transactions with official documents
- Ensuring accurate declarations
- Recording all items in accounting books properly
- Providing timely and complete information to the tax office
Formal Requirements in Turkey
1. Certificate of Residence
When claiming international tax advantages, a Certificate of Residence issued by the Turkish Revenue Administration must be provided.
2. Proper Documentation
- Invoices, contracts, receipts, and transfer pricing reports must be complete and transparent.
- For companies, Board resolutions and General Assembly minutes are essential.
3. Declarations and Notifications
- All income must be declared on time.
- VAT, withholding tax, temporary tax, and corporate tax returns must be filed within legal deadlines.
4. Transfer Pricing Compliance Report
Multinational companies are legally required to prepare a Transfer Pricing Report for transactions with related parties.
International Formal Requirements
Turkey has adopted several OECD BEPS (Base Erosion and Profit Shifting) standards, including:
- Principal Purpose Test (PPT)
- Limitation on Benefits (LOB)
- Multilateral Instrument (MLI) applied to updated tax treaties
These measures aim to prevent artificial transactions carried out solely for tax advantages.
Common Formal Mistakes in Turkey
Frequent mistakes by companies include:
- Not formalizing service agreements in writing
- Group loans not aligned with market conditions
- Dividend distributions without sufficient documentation
- Missing Certificate of Residence in cross-border contracts
- Failure to declare the beneficial owner information
Compliance and Security in Tax Planning
To ensure effective tax planning in Turkey:
- Strengthen with Documents: Always support transactions with contracts, protocols, and transfer pricing analyses.
- Align with International Standards: Pay special attention to OECD rules and MLI requirements for cross-border transactions.
- Seek Professional Advice: Wrong or incomplete declarations may result in significant penalties and interest charges.
Professional Support for Tax Planning
Full compliance with local legislation and international tax standards is the key to minimizing risks and choosing the most effective strategy for your company.
ÖzbekCPA provides comprehensive, compliant, and internationally aligned tax planning solutions in Turkey. For detailed information and consultancy, feel free to contact us.
