What Is Transfer Pricing in Turkey?
Transfer pricing refers to the prices set for transactions between related parties — such as a Turkish company and its foreign parent, subsidiaries, or affiliated entities. Turkish tax law requires that these prices comply with the arm’s length principle (emsallere uygunluk ilkesi): transactions must be priced as if they were conducted between independent parties under comparable conditions.
When related-party prices deviate from the arm’s length standard, Turkish tax authorities can reclassify the difference as a disguised profit distribution (örtülü kazanç dağıtımı) — effectively treating the difference as a taxable dividend with associated tax and penalty consequences.
Legal Framework
Turkish transfer pricing rules are primarily found in:
- Corporate Income Tax Law No. 5520, Article 13: Core statutory provision
- General Communiqué on Disguised Profit Distribution Through Transfer Pricing (Series No. 1): Detailed implementing rules
- Annual update communiqués: Adjustments to thresholds and documentation requirements
Turkey’s rules are broadly aligned with the OECD Transfer Pricing Guidelines, though some Turkey-specific requirements apply.
Who Is a Related Party?
For Turkish transfer pricing purposes, related parties include:
- Parent companies (shareholding ≥10% directly or indirectly)
- Subsidiaries
- Companies with common ultimate parent (sister companies)
- Shareholders personally involved in management
- Spouses and relatives up to third degree of managers or majority shareholders
- Companies where the same persons control management through other means
Covered Transactions
Transfer pricing rules apply to:
- Goods transactions: Sale or purchase of products between related parties
- Services: Management fees, consulting, IT support, shared services
- Financial transactions: Loans, guarantees, cash pooling
- Intellectual property: Royalties, license fees
- Real estate: Rental of properties between related parties
- Cost contributions: Cost-sharing arrangements
The Arm’s Length Pricing Methods
Turkish law prescribes five accepted transfer pricing methods (aligned with OECD Guidelines):
| Method | Description | Best For |
|---|---|---|
| Comparable Uncontrolled Price (CUP) | Compare price with transactions between unrelated parties | Commodity transactions, financial instruments |
| Cost Plus | Add arm’s length mark-up to production costs | Manufacturing, services |
| Resale Price | Subtract gross margin from resale price | Distribution |
| Profit Split | Divide combined profits based on contribution | Complex transactions with unique intangibles |
| Transactional Net Margin (TNMM) | Compare net profit margins to comparable companies | Service and distribution companies |
The best method approach applies — the most appropriate method for the specific transaction must be selected. CUP is preferred where reliable comparable data exists.
Documentation Requirements
Annual Transfer Pricing Report
Companies with related-party transactions must prepare an annual Transfer Pricing Report documenting:
- Description of the company, business, and industry
- Details of all related-party transactions (type, volume, pricing)
- Selection and application of the chosen pricing method
- Benchmarking analysis (comparables search)
- Conclusion on arm’s length compliance
Thresholds for Documentation
Documentation obligations vary by transaction type:
| Transaction Category | Documentation Threshold |
|---|---|
| Transactions with foreign related parties | All transactions (no minimum) |
| Transactions with domestic related parties | Over 30,000 TRY per transaction type per year |
| Free zone and regional management center transactions | Specific rules apply |
(Verify current thresholds in the latest General Communiqué — they are updated periodically)
The Transfer Pricing Report must be submitted to the Revenue Administration upon request (not automatically filed with the tax return, but must be available immediately upon audit request).
Country-by-Country Reporting (CbCR)
Turkey has implemented Country-by-Country Reporting (CbCR) for multinational enterprise groups:
- Applies to Turkish entities that are part of a multinational group with consolidated group revenue of €750 million or more
- The Turkish parent or designated surrogate entity must file a CbCR with the Revenue Administration
- CbCR data is exchanged with other tax authorities under automatic exchange agreements
Advance Pricing Agreements (APAs)
Turkish law allows companies to enter into Advance Pricing Agreements (APAs) with the Revenue Administration (Gelir İdaresi Başkanlığı — GİB):
- The company proposes an arm’s length methodology for future related-party transactions
- GİB reviews and, if acceptable, agrees to apply that methodology for a specified period (up to 3 years)
- Once agreed, the APA provides certainty against transfer pricing adjustments during the covered period
APAs are unilateral (involving only Turkey) or bilateral/multilateral (involving Turkey and one or more treaty partner tax authorities). Bilateral APAs eliminate the risk of double taxation more effectively.
The APA process typically takes 12–24 months from application to agreement.
Disguised Profit Distribution Consequences
If transfer pricing deviations are identified during a tax audit, the Revenue Administration can:
- Reclassify the non-arm’s length amount as a disguised profit distribution
- Increase taxable income by the reclassified amount and assess additional corporate income tax at 25%
- Impose a withholding tax (15%, or treaty-reduced rate) on the deemed dividend to the foreign related party
- Apply tax loss penalties: 1× the unpaid tax for negligent non-compliance, potentially higher for evasion
- Charge interest on underpaid tax from the original due date
Practical Compliance Tips
- Document everything: Maintain documentation of the pricing methodology for all significant related-party transactions, even if below formal documentation thresholds
- Use benchmarking databases: Commercial databases (Bureau van Dijk Orbis, TP Catalyst) provide comparability data
- Review intercompany agreements: Ensure written contracts for all related-party services, loans, and IP licenses exist and reflect the actual economic substance
- Update annually: Transfer pricing analyses should be updated annually for significant transactions
- Engage specialist advisors: Transfer pricing is a specialized field — engage a Turkish Big Four or qualified independent firm for complex transactions
Frequently Asked Questions
Does Turkey follow OECD Transfer Pricing Guidelines? Yes. Turkish transfer pricing rules are broadly consistent with the OECD Guidelines, though there are some local nuances. The Revenue Administration explicitly references OECD guidance in its communiqués.
Do transfer pricing rules apply to transactions between two Turkish related parties? Yes, but only when the transaction amount exceeds 30,000 TRY per transaction type per year. For domestic transactions, the practical consequence of a transfer pricing adjustment is often more limited because both parties are taxed in Turkey (the additional income tax is offset by a deduction at the other party).
What if my Turkish company receives a management fee from the foreign parent? Management fees paid TO the Turkish company (income) reduce the parent’s taxable income abroad and increase Turkish taxable income. Transfer pricing rules ensure the fee reflects genuine services rendered at arm’s length. The Turkish company also needs to charge 20% VAT on such services.
Is there a safe harbor for small related-party transactions? Turkey does not have an explicit safe harbor for small transactions, but the Revenue Administration focuses audit resources on transactions above the thresholds and with material tax at stake. Maintaining basic documentation for all transactions is best practice regardless of size.