What is Transfer Pricing?
Transfer Pricing Attestation Service… Transfer pricing is the specification of the price to be applied in purchase and sale transactions between the parties considered ”related parties” in terms of corporate tax.
Embowered profit distribution held through transfer pricing is the transfer of profit, in whole or in part, to the other party by purchasing or selling goods or services at the price determined by the related parties, contrary to the ”arm’s length” principle.
The Obligation of Transfer Pricing Documentation
It is known that one of the regulations made in order to ensure that the incomes of full and limited taxpayer real persons and corporations which purchase and sell goods or services with related parties completely and accurately make their tax declarataions and prevent tax exceedance through transfer pricing are the documentation of transactions related to transfer pricing.
Information on the Annual Transfer Pricing Report, which must be documented by taxpayers for this purpose, is summarized below:
Transfer Pricing Attestation Service
Transfer Pricing Attestation Service, “Disguised Profit Distribution with Transfer Pricing”, which entered into force on 01.01.2007 with the amendments made in Article 13 of the Corporate Tax Law No. 5520 and in parallel with the Law No. 5615 in Article 41 of the Income Tax Law, It is one of the issues that should be taken into account carefully by multinational companies and group companies.
Transfer pricing; is the pricing applied in the sale of goods and services or in different similar commercial transactions between different companies, divisions, branches, and subsidiaries of an enterprise within the same commercial organization.
According to the Turkish Tax Legislation; If corporations buy or sell goods or services with related parties at the price they have determined violating ”the arm’s length principle”, the profit is deemed to have been distributed in whole or in part implicitly through transfer pricing, and penalty corporate tax/income tax assessment is based on profit distribution. As a result, there may be a penalty tax assessment depending on the situation, for the partner who is deemed to have received his/her profit share by taking the final decision.
Companies are required to prepare an annual transfer pricing report within certain limits and fill in the “Form on Transfer Pricing, Controlled Foreign Corporation and Covered Capital” included in their corporate tax returns.
It provides services for the preparation of reports and forms that must be prepared in accordance with the transfer pricing regulations in the Tax Laws, as well as the preparation of special reports and audit files requested by the management.
Is it mandatory to prepare the Annual Transfer Pricing Report?
In the General Declaration on Concealed Profit Distribution through Transfer Pricing No. 1 published in the Official Gazette dated 18.11.2007 and numbered 26704, and in the Council of Ministers Decision no. 2007/12888 published in the Official Gazette dated 06.12.2007 and numbered 26722. With the regulations made, it has become mandatory until the submission period of the Annual Transfer Pricing Report and the Corporate Tax Return (until the evening of April 25 for taxpayers whose accounting period is a calendar year.).
Who has to prepare the Annual Transfer Pricing Report?
All full and limited taxpayer real persons and institutions in Turkey are within the scope of transfer pricing application and taxpayers who have to prepare the Annual Transfer Pricing Report can prepare this report by themselves or through the SMMM and/or CPA bodies that they receive service from.
For which transactions and by whom the Transfer Pricing Report should be prepared is shown in the table below:
|Taxpayers Registered with the
”Large Taxpayers Tax Office”
|– Domestic transactions
– Transactions abroad – with taxpayers in Free Zones
|Other Corporate Taxpayers||– Foreign transactions
– With taxpayers in Free Zones
|Operating in Free Zones
|– Domestic transactions|
What are the consequences of not preparing the Annual Transfer Pricing Report in a reasonable time or at all?
If the report is requested by the Tax Administrations or Customs Directorates, it will not be possible to collect the necessary information from abroad for a report that has not yet been prepared, to make economic analyzes and to eliminate these risks in case of an existing risky situation. This situation will put taxpayers in a difficult situation against Tax Administrations or Customs Directorates. In addition, reports that are requested by the authorities but cannot be submitted or prepared completely will increase the risk of tax inspection, and in this case, the special irregularity provisions written in the repeated article 355 of the Tax Procedure Law will be enforced to the taxpayers.
However, if taxpayers fulfil their documental obligations regarding transfer pricing completely and in time, and if it is determined that these taxpayers distributed the profits implicitly, a 50% discount and a tax loss penalty will be applied to the taxes that are not realized in time.
Preparing and preserving Annual Transfer Pricing Reports in line with the instructions above and exhibiting them when necessary will make it possible for taxpayers to prevent the negative criticisms that they may encounter in a possible tax/transfer pricing inspection and the penal risks that may arise from it.