Tax treaties are bilateral agreements established between countries to facilitate economic cooperation, eliminate double taxation, and provide a predictable tax framework for international investment. The preparation of these agreements involves a highly technical, multilateral, and carefully negotiated process.
As a member of the OECD and a developing, capital-importing economy, Turkey follows an active and strategic approach to the negotiation and implementation of tax treaties. This article outlines how tax treaties are created, Turkey’s role in the process, and its strategic priorities.
1. What Is a Tax Treaty?
A tax treaty is a bilateral agreement that prevents the same income from being taxed in both contracting countries. These agreements aim to:
- Prevent double taxation
- Reduce tax uncertainty
- Improve the investment climate
- Combat tax evasion and base erosion
2. Stages in the Making of Tax Treaties
a. Policy Determination
Each country first identifies its own economic and fiscal interests. In Turkey, this process is led by the Ministry of Treasury and Finance (Revenue Administration). At this stage, Turkey often emphasizes maintaining taxation rights as a source country.
b. Use of Model Conventions
Countries typically rely on international models when drafting treaties:
- OECD Model Convention (used by developed economies)
- UN Model Convention (preferred by developing countries)
Turkey is familiar with both models but usually enters negotiations with a customized “Turkish Model Treaty” that reflects its national interests.
c. Negotiation Process
Bilateral meetings are held between the two countries. The key topics negotiated often include:
- Residency rules
- Permanent establishment (PE) definition
- Taxation of passive income (interest, dividends, royalties)
- Real estate income
- Employment and independent services
- Exchange of information provisions
Turkey seeks to balance its goals of attracting investment and protecting its tax base.
d. Signature and Ratification Process
Once the agreement is finalized:
- It is signed through the Ministry of Foreign Affairs
- It is ratified by the Grand National Assembly of Turkey (TBMM)
- It is published in the Official Gazette and enters into force
3. Turkey’s Policy and Priorities
Turkey’s treaty policy is based on shared taxing rights and anti-abuse provisions. In particular, Turkey:
- Advocates for taxation rights in the source country
- Supports international cooperation on tax information exchange (CRS, FATCA, MCAA)
- Updates its treaties based on OECD BEPS standards and the Multilateral Instrument (MLI)
In recent years, Turkey has launched new negotiations with El Salvador, Uganda, and several Latin American countries, while revising existing treaties in line with global standards.
4. Implementation and Oversight in Turkey
In Turkey, tax treaties that have entered into force are:
- Administered by the Revenue Administration (GIB)
- Directly applicable by taxpayers
- Open to dispute resolution via the Mutual Agreement Procedure (MAP)
- Referred to in court decisions (e.g., Council of State), often alongside OECD Commentaries
5. Turkey’s Role in the Global Tax Treaty Network
Turkey maintains a broad network of tax treaties with over 80 countries. This network:
- Builds confidence for international investors
- Reduces double taxation risks
- Enhances compliance with global standards
- Protects the national tax base and promotes transparency
Turkey’s active and balanced approach to treaty-making strengthens its position in the global economy and improves its appeal as a destination for foreign investment.
At ÖzbekCPA, we provide expert guidance on tax treaties, double taxation prevention, and international tax compliance. Our team helps you navigate Turkey’s treaty network, identify applicable benefits, and ensure full compliance for your cross-border operations. Contact us today to discuss tailored solutions for your business.
