Transfer Pricing. Audit.Tax.Consulting.Corporate Finance. The Importance of Transfer Pricing Rules & Required Preparation

Transcription

1 Transfer Pricing. The Importance of Transfer Pricing Rules & Required Preparation Zeki Kurtçu, Tax Partner in Charge Head of Tax Advisory Services December 19, 2006 Ritz Carlton Hotel - Istanbul Audit.Tax.Consulting.Corporate Finance.

2 Disguised Profit Distribution Through Transfer Pricing Transfer Pricing Implementations

3 An Important Reform For Turkish Tax Legislation: Transfer Pricing Old Concept: Disguised Profit Distribution (Previous Corporation Tax Law - Article 17) New Concept: Disguised Profit Distribution Through Transfer Pricing (New Corporation Tax Law - Article 13) The new rules are in line with the OECD principles and consequently the international implementations. Pricing methods are now defined. The obligation for documentation is introduced. The Liability for proof is upon the tax-payer There is a possibility to conclude advance pricing agreements with the Turkish Revenue Authority. The Adjustment mechanism is introduced.

4 Why is Transfer Pricing Important for TAXPAYERS? As globalization increases, the activities of the multinational companies in various countries increase and the transfer pricing becomes more and more important both for the management and shareholders of these companies. Transfer pricing is important for multinational companies with regard to the following aspects ; a) Tax planning b) Optimization of Tax Burden c) Prevention of Double Taxation Both the Tax Administrations and Customs Administrations give more and more importance to this issue.

5 Why is Transfer Pricing Important for TAX ADMINISTRATIONS? Transfer pricing rules and documentation procedures come into force in more and more countries in an attempt to prevent the erosion of the tax base. Those countries which do not have any transfer pricing (TP) regulations or those having TP regulations however who do not implement them correctly; - are exposed to erosion in their tax base in favor of the other companies, - are affected more from the harmful tax competiton, - The added value to be derived from the foreign capital investments needed for the development of the national economy decreases as a result of failure to monitor the unfavorable shifts of tax base. The tax administration of those countries which try to attract tax bases from other countries, may aggressively use transfer pricing rules as a tool to increase their national tax base.

6 Steps for Corporations To Be Prepared For the Applications Determination of the teams and personnel who will work and specialize in transfer pricing (It may be necessary to establish a separate department in the large scale companies.) Training To inform the main shareholders of companies with foreign capital about the transfer pricing issues and the demand for the required information and documents The analysis of existing and potential risks Beginning to prepare for the documantation Watching closely the legislation and adaptation in time ; the necessary harmonization to be satisfied on time as the additional explanations are made by the tax administration. Determination of the need for the professional support and consultancy with regard to the issues related to transfer pricing

7 Preparations/Actions Expected from the Turkish Revenue Authority Announcement of the regulations regarding application of new rules Announcement by the Council of Ministers of the list of the countries/regions which are involved in harmful tax competition Formation of the Unit in the Tax Administration which will evaluate / accept the conclusion/application for Advance Pricing Agreements (APA), and continuous development of this APA Unit considering the potentially high demand from taxpayers for conclusion of APAs. Determination and announcement of the databases to be used for the purpose of comparisons and economic analyses Announcement of Communiqués which address to uncertain issues and queries of taxpayers in practice, on a timely basis. Explanations as to how to implement the procedures for mutual agreement based on Double Tax Treaties.

8 Deloitte Turkey Member of Deloitte Touche Tohmatsu