BEPS Explained: The first in a series of columns looking at how to tackle BEPS
Where we are at BEPS Act on 13?
I’m often asked to explain transfer pricing documentation nowadays, not only from our clients but also from other international colleagues asking me what they should do for 2017 year-end reporting.
That is why, in a series of acticles, I will explore where we are with respect to transfer pricing on the BEPS action plan and the implications for Turkish transfer pricing legislation. The series will look at the OECD’s action plan and provide an overview of the Turkish transfer pricing compliance system.
Transfer pricing documentation has admittedly been a very important issue in Turkey, with obligations such as the Annual Transfer Pricing Report and Attachment 2 of the corporate tax return. But with the introduction of Action 13, there are greater future obligations for corporations based in Turkey.
Although these regulations have not yet been finalized through official Communiqués, which are expected, let’s consider the steps that have been taken by the Turkish tax authority vis a vis their effects on corporate taxpayers.
OECD BEPS Act on Plan
The OECD BEPS action plan has multiple aims. Overall, it strives to improve the taxation system with the goal of increasing globalization. More specifically, it’s goal is to supplement the oversight abilities of tax authorities through the international exchange of information and prevent international companies from being exposed to
different local regulations.
Act on 13
This is part of the fundamental changes to the OECD Transfer Pricing Guidelines (OECD TP), introducing additional transfer pricing documentation obligations on multinational corporations. The milestone was set for the 2016 financial accounting period for its implementation in many countries, while in some countries it was 2017 or later. The new documentation requirements are referred to as the threetiered documentation system and consists of the following:
Master File: This document, which is the main documentation for transfer pricing, contains information and documents stand- ardized for all members of the multinational group.
Local File: The relevant country-specific documentation is complementary to the main documentation and in this context the information and documents required from the enterprises are mainly prepared to support the master file. Current transfer pricing regulations in Turkey refers to it as the annual transfer pricing report.
Country-by-Country Report (CBCR): This report is linked to a group of multinational companies and includes information such as revenues, profitability and taxes paid in the countries by the multinational enterprise in which the consolidated revenue exceeds €750 million.
Steps taken by the Turk sh Revenue Adm n strat on
The Turkish Revenue Administration issued a Draft Communique on March 16, 2016 which changes the current transfer pricing legislation and introduces the Master File, Local File and Country by Country Reporting in Turkey. In May 2017, the Administration also published a draft resolution of the Council of Ministers. The regulations are expected to come into force in 2018.
Once the rules are entered into force, the new documentation requirements, i.e. for newcomers, that must be prepared by Turkish corporations are the following:
• Master file
•Attachment 4 transfer pricing form, in addition to the existing transfer pricing form Attachment 2 of the corporate tax return
The current reporting requirements to be filed at their due dates, including the annual transfer pricing report and transfer pricing form Attachment 2, which are to be prepared by the Turkish taxpayer, remain unchanged. In addition to these developments, according to law No. 6728 published in 2017, if the transfer pricing documentation of the taxpayer is prepared fully and on time, the tax penalty is reduced to 50 percent, indicating that, compared to the past, transfer pricing documentation will be more important both at the assessments of the Turkish Revenue Administration and by the taxpayers.