Transfer Pricing in Turkey is a crucial element of international taxation and compliance, particularly for multinational companies and corporate groups operating across borders. It refers to the pricing of goods, services, and intangible assets exchanged between related parties within the same group of companies. Turkish transfer pricing rules follow OECD guidelines and aim to ensure that transactions between related entities are conducted at arm’s length.
What Is Transfer Pricing?
Transfer pricing refers to the prices of goods and services exchanged between companies under common control. For example, if a subsidiary company sells goods or renders services to its holding company or a sister company, the price charged is referred to as the transfer price.
In the context of Transfer Pricing in Turkey, the price used for such intercompany transactions must reflect fair market value to prevent manipulation of profits across jurisdictions.
RELATED PARTY / RELATED PERSON
Under Turkish tax legislation, the following are considered related parties for transfer pricing purposes:
- Shareholders of the corporation.
- Individuals or legal entities related to the corporation or its shareholders.
- Individuals or legal entities which control the corporation directly or indirectly in terms of management, supervision, or capital.
- Individuals or legal entities which are controlled by the corporation directly or indirectly in terms of management, supervision, or capital.
Turkish Revenue Administration provides detailed criteria to determine related party relationships for Transfer Pricing in Turkey purposes.
THE ARM’S LENGTH PRINCIPLE
The arm’s length principle is the core standard in Transfer Pricing in Turkey, requiring that the price or cost applied in the purchase or sale of goods or services with related parties reflects the price that would occur between unrelated parties under similar circumstances.
This principle ensures fair profit allocation and reduces the risk of profit shifting or tax base erosion.
TRANSFER PRICING METHODS
- Comparable Uncontrolled Price (CUP) Method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method (TNMM)
- Transactional Profit Split Method
- Other Methods
APPROACHES TO AVOIDING AND RESOLVING DISPUTES
Advance Pricing Agreement (APA)
Turkey has implemented a formal APA (Advance Pricing Agreement) program, which includes:
- Unilateral, bilateral, and multilateral APAs
- No statutory deadlines for filing an APA request
- APAs are valid for up to five years
- Roll-back is allowed for bilateral APAs where the same facts apply in open fiscal years
The APA mechanism under Transfer Pricing in Turkey allows companies to gain certainty in their pricing policies and avoid future tax disputes.
IMPORTANCE OF TRANSFER PRICING
For the Economy
- Helps ensure fair allocation of taxable income across jurisdictions, preventing base erosion and profit shifting (BEPS).
- Enhances transparency and accountability in international business transactions.
- Protects tax revenues by reducing opportunities for tax avoidance.
For Companies
- Allows for efficient allocation of resources and proper pricing of inter-company transactions.
- Minimizes the risk of double taxation by adhering to internationally accepted principles.
- Provides a structured approach to comply with local and international tax laws.
As Transfer Pricing in Turkey becomes more strictly monitored, it is essential for companies to maintain proper documentation and apply the arm’s length principle rigorously.
How Will You Decide in Which Country Gains Will Be Taxed?
- Based on the arm’s length principle to determine fair market value for transactions.
- Through analysis of the functions performed, assets used, and risks assumed by each entity.
- By complying with local tax regulations and double taxation treaties to allocate profits correctly.
Transfer pricing allows for the establishment of prices for goods and services exchanged between subsidiaries, affiliates, or commonly controlled companies that are part of the same larger enterprise. Transfer pricing can lead to tax savings for corporations, though tax authorities may contest their claims.
Conclusion
Transfer Pricing in Turkey is a highly regulated area that plays a pivotal role in international taxation, compliance, and profit allocation. Businesses engaging in related-party transactions must understand local rules, select the appropriate pricing methods, and prepare robust documentation. With increasing scrutiny from tax authorities, companies that proactively manage their transfer pricing policies are better positioned to avoid penalties and maintain transparency.
Contact us for professional assistance in establishing compliant and tax-efficient transfer pricing structures in Turkey.
