A tax consultant, who wishes to remain anonymous, said clients, mostly foreign companies with Turkish subsidiaries, have been making some enquiries but it has not gone further than that.
Only one APA has been signed since the Corporate Income Tax Law No 5520 (CIT 5520) came into effect on January 1 2007 so the process does not have a lengthy track record. Law CIT 5520 encompasses transfer pricing regulations under article 13 (3). APAs are covered under article 13(5) of the law, which set January 1 2008 as the first date corporate taxpayers could petition the Ministry of Finance for consent on unilateral, bilateral and multilateral agreements.
Abdulkadir Kahraman, head of tax at KPMG in Istanbul, says there has been another application for an APA, which should give encouragement among the tax authorities and taxpayers considering this option.
The source intends to observe the first APA over the next three years - the maximum length of validity after a Turkish APA is signed, providing the original conditions hold – to see how the agreement works in practice.
Taxpayers in Turkey going into related-party deals with corporations operating in one of the country’s free trade zones, such as the one near Istanbul Ataturk Airport, classified as a special tax regime, are also eligible to enter into APAs for these transactions.
At the end of the three-year term, APA holders will be eligible to renew the agreement for the same length of time as determined in the original contract. The 2011 filing fee is TL33,171 ($19,000). As of this year, an APA renewal costs TL26,537.20. The fee structure may change from year to year.
The Turkish tax authorities have not disclosed the name or the industry of the first successful APA applicant, or of the one from where the pending application has come.
A deterrent to entering into APA negotiations for companies, other than a fear of the unknown, is the concern that the authorities will use information from applications as a road map for audit.
“There is often a grey area in terms of what goes where in terms of data and information exchange,” said the source. “At the state tax administration, there is no great wall between the [APA] application and where it goes.”
“Taxpayers are not really sure what to do, so we try not to affect them too much,” the source added, naming the pharmaceutical and automotive industries as among those likely to show interest in applying.
However, the official in charge of transfer pricing for the Turkish tax authorities, believes APAs reduce risk.
““Tax auditing in Turkey has been reorganised and gathered under a single unit,” says Feyyaz Yazar, head of the transfer pricing group in the Turkish Revenue Administration. “In this new audit unit at the Ministry of Finance, four different divisions have been formed and one of these divisions is organized just for transfer pricing issues. This formation shows that transfer pricing is regarded as a separate risky area and tax audits are formalized accordingly. An APA, therefore, has a function to eliminate the risks rather than creating a risky area.”
From the tax authorities’ perspective, the first unilateral APA represents a step in the right direction.
In an exclusive interview last month with TP Week, Yazar said multinational corporations had shown an interest in entering into APAs and the administration was looking forward to broadening the transfer pricing programme with a view to negotiating bilateral APAs and making use of international initiatives, such as the European Arbitration Convention.
The Turkish tax inspection committee was also recently restructured to include new subcommittees covering transfer pricing, small and large-scale taxpayers and cross-border issues.
Kahraman is also sanguine on the development of APAs in the mid to long term. “Now that they have one APA concluded, they will have the comfort, confidence and the know-how to negotiate more agreements.”
He also sees the Turkish tax authorities pursuing bilateral and multilateral APAs, which is crucial, as some of the country’s key trading partners, such as Germany, do not accept unilateral APAs.
