Double Taxation Avoidance Agreements (DTAAs) are crucial tools in preventing international tax disputes and promoting cross-border economic activity. At the heart of these agreements lie model tax conventions, primarily developed by the OECD and the United Nations (UN), and their accompanying commentaries. These models provide a standardized framework and guide tax treaty negotiations between countries.
Turkey, as both an OECD member and an emerging economy, adopts a hybrid approach, drawing from both the OECD and UN models, while also developing its own national position to protect domestic interests. This article outlines the role of model treaties and commentaries, their evolution, and how Turkey incorporates them into its international tax policy.
1. What Are Model Tax Treaties?
Model tax treaties are template agreements designed to allocate taxing rights between countries and to prevent the same income from being taxed twice. The two main frameworks are:
- OECD Model Tax Convention on Income and on Capital
- United Nations Model Double Taxation Convention
These models define rules regarding various income types—such as business profits, dividends, royalties, interest, and employment income—and indicate which country (source or residence) has the right to tax.
2. Turkey’s Approach to Model Treaties
Turkey’s Treaty Policy
Turkey has signed over 80 DTAAs and typically starts negotiations by submitting its own “Turkish Model Tax Treaty”, which reflects a balanced approach between attracting investment and safeguarding tax revenue.
Characteristics of the Turkish Model
- Wider taxing rights for the source country, particularly for passive income such as dividends, interest, and royalties
- Broad definition of permanent establishment, especially in service-related industries
- Preference for the tax credit method over exemption, ensuring income is taxed but avoiding double taxation
- Alignment with OECD’s and partially with UN’s perspectives on distributive rules and tax avoidance measures
This model reflects Turkey’s position as a capital-importing country with a desire to protect its tax base.
3. Role of Commentaries in Treaty Interpretation
Commentaries published alongside model treaties are not legally binding, but serve as key interpretative tools. For instance:
- OECD Commentaries are widely recognized and applied by courts and tax authorities, including in Turkey.
- UN Commentaries reflect the views of developing countries and are used by Turkey when negotiating with non-OECD partners.
In Turkey, the Council of State (Danıştay) and tax authorities often refer to these commentaries when interpreting treaty provisions—especially in complex cases involving permanent establishment, royalties, or service income.
4. Turkey and the OECD BEPS Framework (MLI)
Turkey actively participates in the OECD’s Base Erosion and Profit Shifting (BEPS) initiatives and has signed the Multilateral Instrument (MLI) to update its existing treaties in line with international anti-abuse measures.
Key developments:
- Adoption of Principal Purpose Test (PPT) to counter treaty abuse
- Implementation of Mutual Agreement Procedures (MAP) into domestic law (2021)
- No adoption of mandatory arbitration under the MLI yet
Turkey continues to revise its tax treaties to align with the BEPS minimum standards, enhancing tax transparency and dispute resolution mechanisms.
5. Mutual Agreement Procedure (MAP) in Turkey
Since 2021, Turkey has enabled MAP as a formal process within its legal system. It allows taxpayers to request bilateral discussions between Turkey and treaty partners to resolve issues like:
- Transfer pricing disputes
- Permanent establishment claims
- Dual residency conflicts
This shows Turkey’s commitment to cooperative tax dispute resolution, although arbitration remains optional and not yet adopted.
6. Commentary Use in Turkish Jurisprudence
In Turkey, tax courts increasingly refer to OECD Commentaries to interpret ambiguous treaty provisions. Common areas of reference include:
- Attribution of profits to permanent establishments
- Withholding tax on royalties and technical services
- Service PE and agency PE interpretations
The use of international commentaries helps align Turkish tax jurisprudence with global norms and ensures legal certainty for investors.
Conclusion: Turkey’s Position in the Global Treaty Framework
Turkey’s tax treaty policy reflects a pragmatic and protective approach—favoring international cooperation while safeguarding national tax interests.
Turkey’s Contributions:
- Active use of OECD and UN models
- Development of its own national model treaty
- Incorporation of BEPS principles through the MLI
- Legal integration of MAP for dispute resolution
- Balanced allocation of taxing rights between residence and source countries
Turkey continues to modernize its tax treaty network, aiming to provide a stable, transparent, and investor-friendly tax environment that aligns with international standards.
