Global Tax Alert | 4 December 2013

Turkish Revenue Authority's rulings provide guidance on IT related transactions

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Recently several rulings have been issued by the Turkish Tax Authority regarding IT (information technology) related transactions. Tax implications of electronic commerce, leasing of servers, and use of electronic currency, among other topics are issues regularly confronting Turkish companies. However, there are no direct regulations covering these issues at this time.

Therefore, this Alert summarizes the recent rulings that currently serve as the principal source to understand the perspective of the Turkish Revenue Authority on IT related transaction issues.

Domain name purchase

Payments made in return for the domain name and IP addresses purchased from abroad are in the nature of a royalty and corporate tax withholding must be applied over such payments.

Web hosting

The amount paid by a Turkish company in return for the server service received for its website from, for example, a Dutch resident company would be treated as business profits. Withholding tax should not be applied over such payments, since the company resident in Netherlands does not carry out business activities through a permanent establishment in Turkey. This treatment may be different with another country involved due to treaty considerations.

Maintaining a server abroad

Since the payments made for the purchase and installation of the computer hardware purchased from the nonresident company are in the nature of commercial income, corporate tax withholding shall not be applied to such payments. On the other hand, the payments made in the name of annual maintenance and operation to, for example, a German resident company in return for the maintenance, security and development services for the computer hardware purchased from this company by the Turkish company are in the nature of independent personal service income and corporate tax withholding shall be applied to such payments under the clause (b) of the first paragraph of the article 30 of the Corporate Tax Law. Again, this treatment may be different with another country involved due to treaty considerations.

Leasing a server abroad

Under the third paragraph of the article 12 of the Double Tax Treaties between Turkey –USA and Turkey-UK, which regulate royalties, as well as the fourth paragraph of article 12 of the Double Tax Treaty between Turkey-Netherlands, payments made in return for leasing a server and the internet services from abroad should be treated as royalty.

Use of electronic money

Since the transfer (sale) of the prepaid cards (paysafecard) which are developed to ensure secure shopping on the internet (which serve as money) by a Turkish company to the distributor and to final consumers by the distributor is not performed in return for a delivery or service, it would not be subject to VAT.

Purchase of game codes

The amounts paid in return for invoices to the nonresident company upon the purchase of the game codes owned by this company should be regarded as commercial income and thus should not be subjected to withholding tax.

Web design

The income obtained by a nonresident company which designs the website named “…” owned by a Turkish company are in the nature of independent personal service income. Using Spain as an example, under the second paragraph of article 14 of the Double Tax Treaty

between Turkey and Spain, which regulates “Independent Personal Services”, the income to be derived by a Spanish resident enterprise due to independent personal services or similar activities performed in Spain without a permanent establishment in Turkey are taxable only by Spain.

Does an internet site constitute a work place?

The sale of goods advertised over internet sites in Turkey should be regarded as commercial income. Accordingly conducting sales via leasing or purchasing a server located in Turkey should be taxed in Turkey.

However in the case where the server is not located in Turkey or if located in Turkey not directly leased or purchased (i.e., in case a service regarding this server is purchased from another company), Turkey would not have the right of taxation.

For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP, Eastern European Business Group, New York
  • Miklos Santa
    +1 212 773 1395
    miklos.santa@ey.com
  • Akif Tunc
    +1 212 773 3623
    akif.tunc@ey.com

EYG no. CM4010