Republic of Turkey
REVENUE ADMINISTRATION
MERSİN TAX OFFICE DIRECTORATE
(Taxpayer Services Group Directorate)
Date: 10/09/2013
Number: 68554973-105[413-2012/16]-100
Subject: Whether an “Invoice” Document Can Be Considered as a Substitute for an Invoice and the Documentation of Management and General Administrative Expenses Incurred by the Overseas Headquarters.
…
In the private ruling request forms numbered (a) and (b); it has been stated that your company, registered with the … Tax Office under tax number …, is a non-resident taxpayer and has been assigned as the general contractor for the supply of goods, provision of services, and execution of works related to the construction of … under the agreement dated … and numbered … in relation to the Agreement,
- You purchased services for the construction of …, and as per the contract, a document called … is issued at the completion of the work for these services purchased from abroad. This document is signed by the parties, similar to a progress payment document in Turkey. During the payment stage, an “invoice” is issued, but it has been stated that this “invoice” is a payment request/evidence document under the laws of … rather than an actual invoice. It has been requested to clarify which of the above-mentioned documents should be considered as an invoice substitute.
- Additionally, it has been requested to clarify how the management and general administrative expenses incurred by your overseas headquarters on behalf of the Turkish branch should be documented and recorded in your books.
As is known, Article 22 of Corporate Tax Law No. 5520 states:
“(1) When determining the income derived through a workplace or a permanent representative by non-resident corporations, unless otherwise specified, the provisions applicable to resident corporations shall apply.
(2) The provisions of the Income Tax Law concerning the determination of profits and revenues other than commercial or agricultural income shall apply to non-resident corporations’ profits and revenues. However, if such profits and revenues are derived within the scope of commercial or agricultural activities conducted in Turkey, the corporate income shall be determined in accordance with the first paragraph of this article.
(3) When determining the corporate income for non-resident corporations, the following deductions shall not be allowed:
a) Interest, commissions, and similar payments made to the headquarters or branches outside Turkey for transactions conducted on behalf of these corporations.
b) Except for the portion of expenses allocated to obtain and maintain income for the Turkish corporation, based on distribution keys determined in accordance with the arm’s length principle, and the travel expenses of authorized persons sent from foreign countries for the audit of the Turkish corporation, no deductions shall be made for contributions to the general administrative expenses or losses of the headquarters or branches outside Turkey.
…”
Regarding this provision, section 22.3 of Corporate Tax General Communiqué No. 1 clarifies that “… Contributions allocated for the general administrative expenses or losses of the headquarters or branches outside Turkey shall not be deducted when determining corporate income.
However, the portion of these general administrative expenses or losses that are allocated for obtaining and maintaining income for the Turkish corporation, based on distribution keys determined according to the arm’s length principle, and the travel expenses of authorized persons sent from foreign countries for the audit of the Turkish corporation, can be deducted. Therefore, these expenses must be related to obtaining and maintaining income in Turkey. Additionally, the distribution key used to determine the portion of these expenses that relates to income in Turkey must be determined in accordance with the arm’s length principle. The arm’s length principle shall be determined in accordance with the provision of the Corporate Tax Law concerning disguised profit distribution through transfer pricing.”
Accordingly, expenses related to obtaining and maintaining the Turkish corporation’s income, based on distribution keys determined in accordance with the arm’s length principle, as well as travel expenses of authorized persons sent from foreign countries for the audit of the Turkish corporation, may be considered as deductible when determining corporate income. However, other expenses incurred by the headquarters cannot be considered as deductible.
On the other hand, Article 227, paragraph 1 of the Tax Procedure Law No. 213 states that “Unless otherwise provided by this Law, records kept under this Law and transactions with third parties must be documented.” These records must be documented using one of the documents mentioned in Articles 229 and following of the same Law, such as an invoice, expense voucher, or producer receipt.
In the section titled “Transactions Related to Payments for Work and Services Rendered by Taxpayers Operating Abroad” of Tax Procedure Law General Communiqué No. 253, it is stated that taxpayers making payments to foreign individuals or institutions for work or services rendered abroad may record valid documents obtained from such foreign individuals or institutions as expenses in their books. It is also mentioned that taxpayers receiving documents from foreign individuals or firms must convert the amounts stated in the documents to Turkish Lira at the exchange rate determined by the Central Bank on the date the documents were issued when recording them in their books. However, it is also noted that if deemed necessary by the examining officer during an audit, taxpayers may be required to have these documents translated.
Accordingly, in order for the amounts incurred due to work or services performed by foreign individuals or institutions to be considered as an expense or cost element, the amounts must be documented using one of the documents mentioned in Articles 229 and following of the Tax Procedure Law. Otherwise, the amounts may only be considered as an expense or cost element if the document obtained from abroad is accepted as a valid document under the tax legislation of the country where the service was provided.
Source: Revenue Administration
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.
