Key Facts at a Glance: 2026
Transfer pricing documentation in Turkey consists of four documents. The scope of each obligation depends on the type of taxpayer and the transaction.
| Document | Who prepares / scope | Threshold (2026) | Preparation / submission deadline | How it is filed |
|---|---|---|---|---|
| Transfer Pricing Form | Corporate taxpayers transacting with related parties | Transaction-amount threshold in the form guide TRY 30,000 | With the corporate tax return | Electronically, under the “Annexes” section of the e-return |
| Annual TP Report (Local File) | Large taxpayers → domestic + cross-border; others → cross-border; free-zone taxpayers → domestic only | No amount threshold | By the corporate tax return filing deadline | Not filed; submitted within 15 days upon request |
| Master File (General Report) | MNE group member; prior-period total assets AND net sales both ≥ TRY 500 million | TRY 500 million (both items) | By the end of the fiscal period following the relevant period | Not filed; submitted upon request |
| Country-by-Country Report (CbCR) | Ultimate parent resident in Turkey of a group with consolidated revenue ≥ EUR 750 million | EUR 750 million | By the end of the 12th month following period-end | To the Revenue Administration via BTRANS (XML); notification by end of June each year |
Penalty side (2026, Tax Procedure Law General Communiqué No. 588):
- Failure to meet the document-submission obligation → special irregularity penalty (irregularity penalties for capital companies start at TRY 35,000).
- Detection of disguised profit distribution → additional corporate tax + tax loss penalty (1.5× from 2 August 2024; 4.5× for acts under Article 359 of the Tax Procedure Law) + late payment interest + withholding tax in certain cases.
- Protective rule: if documentation is prepared completely and on time, the transfer-pricing-related tax loss penalty is applied at a 50% reduction (Article 13, Corporate Tax Law).
What Is Transfer Pricing?
Transfer pricing is the determination of the price or consideration applied in transactions between related persons or companies — covering goods, services, financing, licences, rent, intangible rights, management services and similar dealings. The core requirement is that this price must conform to the price that would arise between independent parties.
When two independent companies transact, the price is shaped by market conditions, bargaining power and commercial risk. Between two companies of the same group, however, the economic will that sets the price often belongs to the same group. For that reason, whether the price in a related-party transaction conforms to market conditions is directly examined for corporate tax purposes.
Why Do These Rules Exist?
The purpose of the rules is to prevent corporate income arising in Turkey from being shifted, through artificial pricing, to other companies, to shareholders, or to lower-tax jurisdictions.
For example, if a company in Turkey sells its products to a foreign group company below market price, the profit that should arise in Turkey may instead surface in another country. Conversely, if the Turkish company receives above-market service, licence, interest or management fee invoices from a related company, the Turkish tax base is eroded.
In this sense, transfer pricing is not a mechanism to penalise group companies; it is a tax safeguard designed to ensure that income is taxed where it is genuinely created.
The Arm’s Length Principle
The essence of the principle: the price or consideration applied between related parties must conform to the price that would arise between independent parties under the same or comparable conditions. In other words, the price of an intragroup transaction must be commercially and economically defensible when compared with similar transactions carried out with unrelated third parties.
Two types of comparables are used:
- Internal comparable: a similar transaction the company carries out with its own unrelated party. If you sell the same product to both a group company and an independent customer, the price applied to the independent customer is an internal comparable. This is the strongest type of comparable.
- External comparable: data from comparable transactions occurring between independent companies in the market (typically sourced from commercial databases).
An important point: there is often no single “correct” price. In practice an arm’s length price or profit-margin range is established, and the question is whether the company’s result falls within that range. (For a practical explanation of where within the range to aim, see the worked example below.)
Who Is a “Related Party”?
The concept covers far more than just affiliated companies; it captures a much wider web of relationships. Related parties include:
- The company’s shareholders and the real persons or entities to which those shareholders are connected
- Persons and entities to which the company is directly or indirectly linked in terms of management, control or capital
- The spouses of shareholders and their relatives by blood and marriage up to certain degrees (including descendants and ascendants)
For that reason, looking only at the direct ownership structure is not enough; management relationships, control, capital ties, de facto influence and family ties must all be assessed together. In practice, the most common error is interpreting the definition of a related party too narrowly.
Legal Basis: Article 13 of the Corporate Tax Law and Related Rules
The primary basis is Article 13 of Corporate Tax Law No. 5520. Under it, if a company transacts with related parties at a price or consideration contrary to the arm’s length principle, the income is deemed to have been distributed in a disguised manner through transfer pricing, in whole or in part.
The scope is not limited to the sale and purchase of goods; it covers manufacturing, construction, leasing, the borrowing and lending of money, wages, bonuses, management services, licences, know-how and similar transactions.
The application details are set out in the General Communiqués on Disguised Profit Distribution Through Transfer Pricing. The three-tier documentation structure was introduced into the legislation by Presidential Decree No. 2151 and its related communiqué.
OECD, BEPS and the Three-Tier Documentation Structure
Transfer pricing is not unique to Turkey. The shifting of profits between countries by multinational groups is a global tax problem. The OECD’s BEPS (Base Erosion and Profit Shifting) work aims to ensure that profit is taxed in the country where economic activity and value are genuinely created.
BEPS Action 13 introduced a three-tier documentation model, which Turkey has adapted into its legislation:
- Annual Transfer Pricing Report (Local File) — the local report of the company in Turkey
- Master File (General Report) — the group’s global picture
- Country-by-Country Report (CbCR) — a country-by-country table of revenue, profit and tax
The practical consequence is this: the local report in Turkey must not conflict with the Master File received from group headquarters. The administration evaluates these reports together.
Documentation Obligations: The Three-Tier Structure
The table below compares the four documents at a glance; each is then explained briefly.
| Feature | Local File (Annual Report) | Master File (General Report) | CbCR | TP Form |
|---|---|---|---|---|
| Purpose | Defend local transactions | Present the group’s big picture | Country-level transparency | Declaration / notification |
| Threshold | None | Assets and net sales ≥ TRY 500m | Group revenue ≥ EUR 750m | Transaction threshold (form guide) |
| Who prepares | Taxpayer | Usually the group parent | Ultimate parent | Taxpayer |
| Deadline | CTR filing deadline | End of following fiscal period | Period-end + 12 months | With the corporate tax return |
| Filed? | No (on request) | No (on request) | Yes (BTRANS) | Yes (annex to e-return) |
Annual Transfer Pricing Report (Local File)
This is the most critical document for local compliance. It contains: the company’s activity, organisational and ownership structure, related parties, transaction types and amounts, a functional, asset and risk analysis, the selected method, a comparability analysis and the arm’s length result.
Who prepares it: taxpayers registered with the Large Taxpayers Tax Office prepare it for their domestic and cross-border related-party transactions; other corporate taxpayers for their cross-border related-party transactions; free-zone taxpayers only for their domestic related-party transactions. There is no amount threshold. It is prepared in Turkish.
Master File (General Report)
This contains higher-level information on the group as a whole: global organisational structure, fields of activity, significant intragroup transactions, intangible rights, financing structure, global transfer pricing policies and financial/tax information.
The obligation applies to taxpayers that are members of a multinational group and whose balance-sheet total assets and income-statement net sales in the prior period were both TRY 500 million or above. It must be prepared by the end of the fiscal period following the relevant period. It must be consistent with the local report in Turkey.
Country-by-Country Report (CbCR) and Notification
This is the document in which multinational groups report, on a country basis, their revenue, profit, tax paid, number of employees, capital, accumulated earnings and tangible assets. It is filed by the ultimate parent resident in Turkey (or, under certain conditions, a surrogate parent or group member) of a group whose prior-period consolidated revenue is EUR 750 million or above, by the end of the 12th month following period-end, via the BTRANS system.
In addition, in-scope group members must submit a CbCR notification by the end of June each year. For this reason, not only the reporting obligation but also the notification obligation must be checked separately.
Transfer Pricing Form
Its full name is the “Form on Transfer Pricing, Controlled Foreign Companies and Thin Capitalisation.” It is filed electronically as an annex to the corporate tax return (the “Annexes” section of the e-return) and declares related parties, transaction types, amounts and the method applied.
The information on the form must be consistent with the annual report — in tax audits, one of the first areas examined is the match between the form and the report.
Who Prepares Which Document? (Summary Matrix)
| Taxpayer type | TP Form | Local File | Master File | CbCR / Notification |
|---|---|---|---|---|
| Large taxpayer (LTO) | YES | Domestic + cross-border | If threshold met | If threshold met |
| Other corporate taxpayer | YES | Cross-border transactions | If threshold met | If threshold met |
| Free-zone taxpayer | YES | Domestic only | If threshold met | If threshold met |
| MNE group member | YES | Per the rule above | Assets & sales ≥ TRY 500m | Group revenue ≥ EUR 750m |
For this reason, obligations must be analysed separately for each company; deciding by looking at a standard list is often not sufficient.
Arm’s Length Pricing Methods
The method is selected based on the nature of the transaction, the available data, and the functions, risks and assets of the parties.
| Method | How it works | Typical use |
|---|---|---|
| CUP (Comparable Uncontrolled Price) | The controlled price is compared directly with an independent transaction price | The most direct method where a suitable comparable exists |
| Cost Plus | An arm’s length gross margin is added to cost | Manufacturing, services, support functions |
| Resale Price | An arm’s length gross margin is deducted from the independent resale price | Distributors |
| TNMM (Transactional Net Margin Method) | The net profit margin of the transaction is compared with independent comparables | The most common in practice; structures where function/risk analysis is feasible |
| Profit Split | Total profit is allocated according to the parties’ economic contributions | Intangible-heavy, integrated transactions that are hard to separate |
Justifying the choice of method is one of the most critical elements of report quality.
What Should a Good Transfer Pricing Report Contain?
A good report is not a formal document listing transaction amounts; it must be able to defend the related-party transactions commercially and economically. Its core is the functional, asset and risk (FAR) analysis:
- Function: Which activities do the parties perform? (manufacturing, distribution, R&D, marketing, logistics)
- Asset: Which tangible and intangible assets are used? (brand, patent, know-how, production facility)
- Risk: Who bears which risks? (inventory, FX, credit, market, collection, warranty, operational)
In addition, the report should include the method rationale, the comparability of the comparable data, document consistency (alignment between contracts, invoices, accounting records, the form and the report) and currency (i.e., the comparables analysis being reviewed with up-to-date data each year).
Worked Example: How an Arm’s Length Range Is Determined Using TNMM
A distribution company in Turkey (the tested party) buys products from a related manufacturer abroad and sells them to independent customers in Turkey. The method selected is TNMM, and the profit level indicator (PLI) is the operating margin = operating profit / net sales.
The operating-margin range of a set of independent comparable distributors (interquartile range):
| Indicator | Comparable value |
|---|---|
| Lower quartile (Q1) | 2.8% |
| Median | 4.5% |
| Upper quartile (Q3) | 6.2% |
| Company’s margin | 2.1% |
The company’s 2.1% margin falls below the arm’s length range (2.8%–6.2%). This indicates that the profit reported in Turkey is low relative to comparables.
Potential base adjustment: If net sales are TRY 100 million, 2.1% → TRY 2.1 million in operating profit. If the administration adjusts the margin to at least the lower quartile (2.8% → TRY 2.8 million), TRY 0.7 million may be added to the base as disguised distributed profit; if adjusted to the median (4.5%), the difference rises to TRY 2.4 million.
Takeaway: The tested party’s result should fall within the range. Although being within the range is generally accepted as sufficient in practice, if the result sits at the lower end the median is the safer target, given the administration’s tendency to adjust to the median. If the result is outside the range, the report should be able to justify the reason (start-up year loss, extraordinary cost, market entry, etc.).
Advance Pricing Agreement (APA)
An APA is a mechanism that allows the method to be applied in certain related-party transactions to be determined in advance with the Revenue Administration. Because the method is approved by the administration, as long as the agreement’s terms are observed, no transfer pricing criticism is raised for the covered periods — providing tax predictability to companies with high-value, recurring and complex intragroup transactions.
The agreement can be valid for up to five years. Because the process requires detailed economic analysis and technical assessment with the administration, it is not suitable for every company; transaction volume, risk level and the method to be applied should be analysed in detail beforehand.
What Happens If the Documents Are Not Submitted? (2026 Penalties)
The risks are two-tiered: formal (documentation) and substantive (tax base).
1. Formal consequence — if documents are not submitted: Failing to prepare the documents on time or to submit them upon request triggers a special irregularity penalty. In 2026, under Tax Procedure Law General Communiqué No. 588, the first-degree irregularity penalty for capital companies is TRY 35,000. In the absence of documentation, it also becomes harder for the company to prove arm’s length conformity; its room to defend itself against the administration’s comparable assessment narrows.
2. Substantive consequence — if disguised profit distribution is detected: The following chain applies:
- Recalculation of the corporate income and additional corporate tax assessment
- Tax loss penalty — from 2 August 2024, applied at 1.5× the under-assessed tax instead of 1×, and at 4.5× instead of 3× where the acts in Article 359 of the Tax Procedure Law are involved
- Late payment interest
- A non-deductible expense effect
- In certain cases, the distributed amount being treated as a dividend and giving rise to withholding tax
- Intragroup adjustment and double taxation risks
3. Protective rule: Under Article 13 of the Corporate Tax Law, if the documentation is prepared completely and on time, the transfer-pricing-related tax loss penalty is applied at a 50% reduction. This is the concrete financial benefit of preparing the report on time — preparing it only after an audit begins forfeits this advantage.
The Transfer Pricing Tax Audit Process
In an audit, the administration generally probes the economic substance of the related-party transactions, the pricing method and the quality of documentation. Documents that may be requested: the annual TP report, the Master File, CbCR/notification information, the TP form, intragroup contracts, invoices, documents showing the service was actually rendered, cost-allocation schedules, interest/royalty/management-fee calculations and comparables analyses.
Particularly for intragroup service fees, the existence of an invoice alone is not sufficient; it must also be shown that the service was actually rendered, that a benefit was derived from it, and that the fee conforms to arm’s length. Common areas auditors examine include intragroup services received from foreign head offices, high management/licence fee payments to foreign companies, and companies running continuous losses for years.
Common Mistakes Companies Make
- Interpreting the definition of a related party too narrowly
- Assuming only cross-border transactions are in scope
- Not supporting intragroup service invoices with sufficient documentation and being unable to prove the service was actually rendered
- Setting interest rates without a comparables analysis
- Not preparing an economic rationale for royalty/licence/brand fees
- Inconsistency between the TP form and the annual report
- Preparing the report only after an audit begins (forfeiting the 50% reduction)
- Not updating the comparables analysis
- Overlooking Master File and CbCR/notification obligations
- Not checking the consistency of a headquarters-prepared report with Turkish legislation
Annual Transfer Pricing Checklist
- Have related parties been correctly identified?
- Have domestic and cross-border related-party transactions been fully listed and correctly classified?
- Has a suitable method been selected and justified for each transaction?
- Has a comparables analysis been done, and is it current?
- Do intragroup contracts exist and are they up to date? Are invoices, records and contracts mutually consistent?
- For service invoices, are there documents showing the service was actually rendered?
- Are interest, royalty and management-fee calculations supported?
- Was the annual TP report prepared on time? Was the TP form completed correctly?
- Have Master File and CbCR/notification obligations been assessed?
- Are the reports in a state to be submitted within 15 days upon request?
In Turkey, transfer pricing is not merely an annual reporting obligation for companies that transact with related parties; it is a compliance area to be assessed together with the intragroup commercial model, financing structure, service relationships and profit allocation. A properly prepared analysis reduces tax risk, strengthens the defence position in an audit, and enables the use of statutory advantages such as the 50% penalty reduction.
At Özbek CPA , we support domestic and foreign-capital companies with transfer pricing, documentation, the annual report, the Master File and country-by-country reporting. To assess your related-party transactions or prepare your annual report, you can contact us.
Frequently Asked Questions
- Are transfer pricing and thin capitalisation the same thing?
No. They are different mechanisms under the Corporate Tax Law (thin capitalisation under Article 12, transfer pricing under Article 13), but they are declared together on the same return annex form. Thin capitalisation concerns borrowing from related parties exceeding a certain multiple of equity; transfer pricing concerns whether the price conforms to arm’s length.
- Are only cross-border transactions in scope?
No. Both domestic and cross-border related-party transactions can be in scope. However, the scope of the annual report obligation varies by taxpayer: large taxpayers prepare a report for domestic transactions as well, while other taxpayers do so mainly for cross-border transactions.
- Is a company that runs continuous losses at higher risk?
Generally, yes. Years of sustained losses are a common trigger in tax audits; the administration may treat this as a sign of non-arm’s length pricing. In such cases it is important to document the economic rationale for the loss (market entry, extraordinary cost, etc.).
- Do I have to translate the Master File received from group headquarters into Turkish?
Transfer pricing reports must be submitted in Turkish. The administration may request Turkish translations of documents drawn up in a foreign language; it is therefore prudent to keep Turkish versions of group documents ready.
- How long must transfer pricing documents be retained?
Documents should be retained within the retention and statute-of-limitations periods under the Tax Procedure Law (generally five years following the relevant year) and kept in a state to be submitted upon request.
- Where within the arm’s length range should I aim?
In practice, a result within the range is usually accepted as sufficient. However, if the result is at the lower end there is a risk the administration adjusts to the median; the median is therefore considered safer. Results outside the range must be justified.
- Does an APA make sense for every company?
No. An APA provides predictability particularly for companies with high-value, recurring and complex intragroup transactions. For companies with low volume or a simple transaction structure, the cost and preparation burden are often disproportionate.
