Presidency of Republic of Turkey has issued a new decree regarding taxation of payment made by Turkish resident to non-resident for internet commercial services.
According income tax code and corporation tax code, taxation of profit of a non-resident enterprise depends on two conditions
Based on this legislation it was not possible to tax international social media companies like Facebook, YouTube, Google on their profit from internet commercial services derived from Turkey simply because these companies have derived profit from Turkey without having any PE in Turkey.
In 2016 Parliament has changed the tax procedure law and authorized President to introduce withholding on any type of payments. For withholding It doesn’t matter whether payment is in the scope of tax or not. Even it does not matter whether receiver is a taxable person or not. This authority overrides the two conditions for taxation of profit derived from Turkey.
President has used that authority to introduce withholding on the payments of the commercial services to resident and non-resident individuals plus to non-resident companies. Not just payment to services provider but to intermediary is also in the scope of withholding. Rate is 15% on the gross amount of payment.
Although change in tax procedure law overrides domestic legislation but does not have any implication on application of the tax treaties concluded by Turkey. Most of the tax treaties does not allow to impose withholding on such payments. At this point it is not clear whether tax treaties will be applied by payer automatically or refund procedure will be employed by tax authority.