Ruling Number: 64597866-KVK-30-13 Introduction In a private ruling dated January 25, 2013, the Large Taxpayers Tax Office (Taxpayer Services Group Directorate) addressed whether withholding tax applies to interest payments made by a bank to the State Oil Fund of the Republic of Azerbaijan. The taxpayer (a bank) requested clarification on whether withholding tax should be applied to interest payments to be made to the Fund. Double Taxation Treaty Provisions Türkiye-Azerbaijan Double Taxation Treaty (Effective as of January 1, 1998) Article 11 – Interest: 1. Interest arising in one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such interest may also be taxed in the Contracting State in which it arises, according to its domestic laws. But if the beneficial owner of the interest is a resident of the other State, the tax charged shall not exceed 10% of the gross amount of the interest. 3. Notwithstanding paragraph 2: (a) Interest arising in Azerbaijan and paid to the Government of Türkiye, the Central Bank of the Republic of Türkiye, or Türkiye Export Credit Bank A.Ş. shall be exempt from Azerbaijani tax. (b) Interest arising in Türkiye and paid to the Government of Azerbaijan or the National Bank of the Republic of Azerbaijan shall be exempt from Turkish tax. 4. The term “interest” includes income from government securities, bonds, debentures, and all kinds of receivables, as well as all other income treated as lending income under the tax laws of the State in which it arises. Analysis of the Fund’s Status Under the Decree No. 434 of the President of the Republic of Azerbaijan dated December 29, 2000, the Regulation on the State Oil Fund of the Republic of Azerbaijan was approved. An examination of this regulation reveals that the Fund has a status representing the Government of Azerbaijan. Ruling Conclusion Key Principle: Under Article 11, paragraph 3(b) of the Türkiye-Azerbaijan DTT, interest arising in Türkiye and paid to the Government of Azerbaijan is exempt from Turkish withholding tax. Application to the Case: Since the State Oil Fund of the Republic of Azerbaijan has a status representing the Government of Azerbaijan, interest payments made by the bank to the Fund fall within the scope of Article 11, paragraph 3(b). Therefore, no withholding tax shall be applied to the interest payments made to the Fund. Summary Table Factor Determination Type of payment Interest Treaty article Article 11 (Interest) Payer Bank resident in Türkiye Recipient State Oil Fund of the Republic of Azerbaijan Status of recipient Represents the Government of Azerbaijan Applicable treaty provision Article 11, paragraph 3(b) Withholding tax required? No – exempt Standard withholding rate (without treaty) Up to 10% Treaty rate applicable 0% (exemption) Important Notes This private ruling is based on Article 413 of the Tax Procedure Law No. 213. The ruling becomes invalid if incorrect information is provided, or if there is ongoing tax audit, litigation, or reconciliation related to this matter. Acting in accordance with this ruling protects the taxpayer from tax penalties and default interest for the related transactions. Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.