The Deadline for Preparing the Annual Transfer Pricing Report is Approaching

Circular No: 2023 / 67

Date: 14.04.2023

As it is known, it is obligatory to prepare the Annual Transfer Pricing Report until the deadline for filing the annual CIT return.  This circular has been prepared both to remind the current regulations and to address important points.

What is the annual transfer pricing report?

Transfer pricing documentation requirements in Turkey consists of the following: master file, annual transfer pricing report, country-by-country report, country-by-country reporting notification form, and transfer pricing, controlled foreign corporations, and thin capitalization form.

The purpose of the annual transfer pricing report is to document that the transactions performed by the corporate taxpayers under the scope of the regulations on Transfer Pricing have been priced in line with the arm's length principle and that the profit derived from these transactions is in line with the arm's length principle.

Corporate taxpayers are obligated to prepare the report for each fiscal year.

What information should be included in the annual transfer pricing report?

The content and format of the Annual Transfer Pricing Report are described in section 7.3.3 of the General Communiqué on Disguised Profit Distribution through Transfer Pricing (Serial No. 1). The report and its appendices must be prepared in Turkish.

An annual transfer pricing report should cover the following:

• Overview of the Company and its activities, organizational structure,  shareholders, and capital structure,
• Overview of the local and global industry the Company and the Group operates in,
• Information about the related parties (tax ID numbers, addresses, telephone numbers, etc.) with whom the Company performs transactions and their ownership structure,
• The analysis of the functions performed, risks assumed, and assets used by the Company and its related parties,
• Information about related party transactions (classification of the transactions based on each related party and transaction type, analysis of the transactions)
• Transfer pricing policy of the Company/Group,
• Intercompany agreements,
• Transfer pricing analyses (selection of the most appropriate method and benchmark analyses).
• Calculations performed to determine the arm's length price or profit margin,
• Information about the multi-year analyses (if applicable),
• Financial data used when applying transfer pricing methods.
   
  Who should prepare the annual transfer pricing report?
   
  Corporate taxpayers who are obligated to prepare annual transfer pricing reports are stated in the table below:

How and when should the annual transfer pricing report be prepared/filed?

The annual transfer pricing report must be prepared and retained until the corporate income tax return submission deadline. If requested after the deadline, the report must be submitted to tax authorities within 15 days.

Timing is of great importance in the preparation of the report that complies with technical standards and the local transfer pricing legislation which is guided by the OECD Guidelines. Taxpayers and consultants should work together in this process.

It is an ideal approach for taxpayers to be proactive and prepare the report before the deadline, taking into account time-requiring factors such as gathering data/information, performing function, risk, asset analyses, and economic analyses, and categorization of financial data on the basis of transaction type and related parties during the preparation process of the report.

What are the consequences of not preparing or late submission of the transfer pricing report?

If the report is requested from tax administrations or customs directorate, it is not possible to obtain necessary information from related parties, performing economic analysis and eliminating the existing risks for a report which has not been prepared yet. This is going to leave the taxpayers in trouble against tax administrations or customs directorates. Furthermore, the report, which is requested by the authorities and could not be submitted or prepared with insufficiencies, is going to increase the risk of possible tax inspections. Within this case, the commands of the special irregularity which are documented in 335^th clause of tax procedure law, are applied.

Taxpayers who fulfill transfer pricing documentation requirements benefit from a 50% deduction in the tax loss penalty amount to be imposed as a result of a tax inspection. In order to benefit from penalty reduction, the above information must be included in the annual transfer pricing report.

According to the above information, the annual transfer pricing report should be prepared in advance and should be kept. The submission of the report when requested is going to eliminate the criticisms within possible tax or transfer pricing inspections and the consequent penalty risks.

Kind Regards

"Our explanations provided above include general information on the subject. No responsibility can be claimed against Rödl & Partner due to the implications arising from the context of this document"