Ruling Number: 62030549-125[6-2012/248]-93 Introduction In a private ruling dated January 25, 2013, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed whether commission payments received from a Romanian resident company for intermediary services are subject to withholding tax and whether taxes withheld in Romania can be set off against corporate income tax and provisional tax in Türkiye. The taxpayer stated that they provide intermediary services to a Romanian resident company in connection with sales to customers in Türkiye. The Romanian company made commission payments to the taxpayer and withheld tax at a rate of 6% on those payments. The taxpayer requested clarification on: Whether such commission payments are subject to withholding tax under the Türkiye-Romania Double Taxation Treaty, and Whether the withheld taxes can be set off against corporate income tax and provisional tax returns. Legal Framework Corporate Tax Law (Law No. 5520) Article 6 – Corporate Income Base: Corporate tax is levied on the net corporate income earned during an accounting period. The determination of net corporate income follows the commercial income provisions of the Income Tax Law No. 193. Article 33 – Setoff of Taxes Paid Abroad: (1) Corporate income taxes and similar taxes paid abroad on profits derived in foreign countries and transferred to the general results accounts in Türkiye may be deducted from the corporate income tax levied on such profits in Türkiye. (4) The amount that may be set off against corporate tax levied in Türkiye on foreign income shall not exceed the amount calculated by applying the corporate tax rate specified in Article 32 to the foreign income earned. Within this limit, taxes that cannot be fully or partially deducted in the accounting period in which the related income is transferred to the general results accounts in Türkiye may be deducted until the end of the third accounting period following that period. (5) If foreign income is earned during a provisional tax period, taxes paid in the country where the income is earned (by withholding or otherwise) may also be set off against the provisional tax calculated for that period. The deductible amount shall not exceed the amount calculated by applying the provisional tax rate specified in Article 32 to the foreign income earned. (6) Taxes paid abroad shall not be deducted from taxes levied in Türkiye unless proven with documents certified by the competent authorities of the foreign country and authenticated by Turkish embassies or consulates (or by similar representatives of the country protecting Turkish interests). (7) If the documents proving the payment of taxes abroad cannot be submitted at the time of assessment, the tax paid or to be paid abroad shall be calculated at the rate applicable in that country (not exceeding the corporate tax rate in Article 32), and the portion of the assessment corresponding to this amount shall be deferred. If the required documents are submitted to the relevant tax office within one year from the assessment date, the assessment shall be adjusted according to the definitive amount stated in the documents. (8) If documents are not submitted within this period without justifiable cause, or if it is determined that the right to setoff is lower than the deferred tax amount, default interest shall be calculated on the deferred taxes. (9) For taxes paid in foreign currency, the exchange rate at the time the related income is transferred to the general results accounts shall be applied. Double Taxation Treaty Provisions Türkiye-Romania Double Taxation Treaty (Effective January 1, 1989) Article 7 – Business Profits: 1. Profits of an enterprise of one Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits may be taxed in the other State but only so much of them as is attributable to that permanent establishment. 7. Notwithstanding the preceding provisions of this Article, payments made to a broker, a general commission agent, or other persons treated as brokers or agents under the tax laws of the Contracting State in which the payments are made, may be taxed in that State. However, the tax so charged shall not exceed 6% of the gross amount of the commission. Nevertheless, if the beneficial owner of the commission, being a resident of the other Contracting State, carries on business through a permanent establishment in the first-mentioned State and there is an effective connection between the activity giving rise to the commission and that permanent establishment, the preceding provisions of this paragraph shall not apply, and the other provisions of this Article shall apply. Article 24 – Elimination of Double Taxation (Paragraph 2): In Türkiye: Where a resident of Türkiye derives income which, in accordance with the provisions of this Treaty, may be taxed in Romania, Türkiye shall allow as a deduction from the tax on the income of that person an amount equal to the tax on income paid in Romania, subject to the provisions of Turkish tax law regarding the setoff of foreign taxes (which shall not affect the general principles of this Treaty). However, such deduction shall not exceed the amount of tax calculated in Türkiye before the deduction on the income that may be taxed in Romania. Ruling Conclusion Key Principle: Under Article 7, paragraph 7 of the Türkiye-Romania DTT, Romania has the right to tax commission payments made to a broker or commission agent at a rate not exceeding 6% of the gross commission amount. Application to the Case: The taxpayer provides intermediary services to a Romanian resident company. The payments received are commission income, which constitutes commercial income. Romania withheld tax at 6% on the gross commission amount, which is within the permitted limit under the treaty. Setoff in Türkiye: Under Article 24, paragraph 2 of the treaty and Article 33 of the Corporate Tax Law No. 5520, the tax withheld in Romania may be set off against: Corporate income tax calculated in Türkiye on the same income, and Provisional tax calculated for the relevant period. The setoff amount shall not exceed the amount of tax calculated in Türkiye on the foreign income before the setoff. Summary Table Factor Determination Nature of payment Commission (commercial income) Payer Romanian resident company Recipient Turkish resident taxpayer Treaty article governing taxation Article 7, paragraph 7 Romania’s taxing right Yes – up to 6% of gross commission Rate withheld in Romania 6% Can the Romanian tax be set off in Türkiye? Yes Against which taxes? Corporate income tax and provisional tax Limitation on setoff Cannot exceed Turkish tax on the same income Required documentation Certified documents proving tax payment abroad (Article 33(6)) Documentation Requirements for Setoff To claim the setoff, the taxpayer must provide: Certified documents from the competent Romanian authorities proving that the tax was paid in Romania. Such documents must be authenticated by Turkish embassies or consulates (or by similar representatives of the country protecting Turkish interests). If documents cannot be submitted at the time of assessment, the tax may be deferred (Article 33(7)). Documents must be submitted within one year from the assessment date. 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. 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