Ruling Number: 38418978-125[30-15/12]-7133 Introduction In a private ruling dated February 19, 2016, the Ankara Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed whether income tax withholding applies to payments made for online services received from a German resident company. The taxpayer stated that a German resident company provides measurement and calibration services for dosimeters owned by the taxpayer. The services are performed remotely, with the German company connecting online via its software programs to the system where the dosimeters are installed. The German company only does business with the taxpayer in Türkiye. The taxpayer requested clarification on whether withholding tax is required on the payments made for these services. Legal Framework – Domestic Law Corporate Tax Law (Law No. 5520) Article 3(2) – Limited Liability: Corporations whose legal and business centers are both not located in Türkiye are taxed only on their income derived from Türkiye. Article 30 – Withholding Tax for Limited Liability Taxpayers: Withholding tax applies to certain types of income, including professional service income. Council of Ministers Decree No. 2009/14593 (January 12, 2009): Type of Professional Service Income Withholding Tax Rate Petroleum exploration 5% Other professional service income 20% Double Taxation Treaty Provisions Türkiye-Germany Double Taxation Treaty (Effective January 1, 2011 – entered into force August 1, 2012) Article 5 – Permanent Establishment: Paragraph 5 – Dependent Agent: A person acting on behalf of an enterprise in one Contracting State creates a permanent establishment for that enterprise if they habitually exercise authority to conclude contracts on behalf of the enterprise. Paragraph 6 – Independent Agent: An enterprise is not deemed to have a permanent establishment in the other State if it carries on business through a broker, general commission agent, or other independent agent acting in the ordinary course of their business (provided they are legally and economically independent). Key Principles for Independent Agent Status: Condition for Independent Agent Result Legally and economically independent from the enterprise May qualify as independent agent Not subject to effective control by the enterprise May qualify as independent agent Does not work exclusively for a single employer May qualify as independent agent Acts on behalf of the enterprise only under orders and instructions Not independent (dependent agent) Article 7 – Business Profits (Paragraph 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 it does, the profits may be taxed in the other State but only so much as is attributable to that PE. Important Note on “Authority to Conclude Contracts”: The concept of “authority to conclude contracts” should not be interpreted narrowly. Even if the agent does not have formal authority to conclude contracts, a permanent establishment may be deemed to exist if: The agent fulfills all necessary preconditions of the contract (negotiations, price bargaining, etc.); The agent carries out all commercial activities directly or indirectly under the enterprise’s orders and instructions; or The activities performed by the agent on behalf of the enterprise exceed the agent’s ordinary business activities. Ruling Conclusion Key Principle under Article 7(1) and Article 5: Factor Determination Where are the services performed? Germany (online connection from Germany – no physical presence in Türkiye) Does the German company have a PE in Türkiye? No (the taxpayer is only a customer, not an agent) Does the taxpayer act as a dependent agent for the German company? No (the taxpayer is not an agent; merely a customer) Taxing right under Article 7(1) Only Germany Withholding tax required in Türkiye? No Conclusion: Since the German resident company performs the measurement and calibration services remotely from Germany without having a permanent establishment or dependent agent in Türkiye, the income derived from these services is taxable only in Germany. No withholding tax is required in Türkiye. Exception (If a Permanent Establishment Exists in Türkiye) If the German company were to have a permanent establishment in Türkiye (e.g., through a dependent agent who habitually concludes contracts on its behalf), then Türkiye would have the right to tax the profits attributable to that PE. In such a case, withholding tax at the domestic rate (20% for professional service income) would apply. Summary Table Factor Determination Nature of service Measurement and calibration of dosimeters (professional service) Location of service performance Germany (online remote access) Does the German company have a PE in Türkiye? No Does the taxpayer act as a dependent agent? No (the taxpayer is merely a customer) Taxing right under DTT Article 7 Only Germany Withholding tax required in Türkiye? No Domestic withholding tax rate (if applicable) 20% (not applicable here) Required Documentation for Treaty Benefits To benefit from the treaty provisions (exemption from Turkish withholding tax), the German resident company must: Obtain a Certificate of Residency from the competent German authorities proving that it is fully liable to tax in Germany on its worldwide income. Provide the original certificate along with a notarized or Turkish Consulate-certified Turkish translation to the withholding agent (the taxpayer) or the relevant tax office. If the Certificate of Residency cannot be provided: Domestic law provisions (20% withholding tax on professional service income) will apply instead of the treaty provisions. Important Notes The key fact is that the services are performed remotely from Germany without any physical presence of the German company or its personnel in Türkiye. The taxpayer is merely a customer, not an agent. Therefore, no dependent agency PE arises. If the German company had a dependent agent in Türkiye (e.g., a person habitually concluding contracts on its behalf), the result would differ. The fact that the German company only does business with the taxpayer in Türkiye does not, by itself, create a permanent establishment. 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. 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