Ruling Number: 62030549-120[Mük 80-2015/866]-13194 Introduction In a private ruling dated February 17, 2016, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed the taxation of gains derived from the sale of real estate inherited by a person resident in France. The taxpayer, acting as the attorney for a French resident individual (the client), stated that the client inherited a real estate property (registered under parcel number …) from their predecessor. The property was subsequently sold. When attempting to transfer the sale proceeds to the client’s bank account in France, the bank requested a tax return declaration regarding the sale proceeds. The taxpayer requested clarification on the taxation of the gain derived from the sale of the inherited real estate. Double Taxation Treaty Provisions Türkiye-France Double Taxation Treaty (Effective January 1, 1990) Article 13 – Capital Gains (Paragraph 1): Gains derived by a resident of one Contracting State from the alienation of immovable property (as defined in Article 6) situated in the other Contracting State may be taxed in that other State. Article 6 – Income from Immovable Property: Immovable property is defined according to the laws of the State where the property is situated. Domestic Law – Income Tax Law (Law No. 193) Article 1 – Scope: Real persons’ incomes are subject to income tax. Income is the net amount of earnings and proceeds obtained by a real person during a calendar year. Article 6 – Limited Liability: Real persons not resident in Türkiye are taxed only on their income derived from Türkiye. Article Mükerrer 80 – Capital Gains (Incremental Value Gains): The following gains derived from the disposal of property and rights constitute capital gains (incremental value gains): 6. Gains derived from the disposal of property and rights specified in Article 70(1)(1), (2), (4), and (7) (including real estate used by farmers in agricultural production who are subject to taxation on an actual basis) within five years from the date of acquisition (except for those acquired without consideration). The term “disposal” means the sale, transfer and assignment for consideration, exchange, set-off, expropriation, nationalization, or contribution as capital to trading companies of the property and rights listed above. Article 70(1)(1): Real estate (immovable property) is listed as a type of property generating real estate capital income. Exception for Acquisitions Without Consideration (Inheritance/Gift) Income Tax Circular No. 76 (published March 25, 2011): Gains derived from the disposal of immovable property acquired without consideration (i.e., by inheritance or gift) are not subject to capital gains tax (incremental value gains). Furthermore, if a person constructs a building on land acquired without consideration, or receives real estate in exchange for construction on such land, the subsequent sale of such property is also not subject to capital gains tax. Ruling Conclusion Step 1 – Treaty Application Under Article 13(1) of the Türkiye-France DTT, the right to tax gains derived from the alienation of immovable property situated in Türkiye belongs to Türkiye (the State where the property is located). Factor Determination Location of real estate Türkiye Resident of the seller France Taxing right under DTT Article 13(1) Türkiye Step 2 – Domestic Law Application Under Article Mükerrer 80(6) of the Income Tax Law, capital gains tax applies to gains from the disposal of real estate acquired within the last five years (for acquisitions on or after January 1, 2007). However, there is a critical exception: Acquisitions without consideration (ivazsız iktisap) – i.e., by inheritance or gift – are excluded from the scope of capital gains tax. Factor Determination How did the French resident acquire the real estate? By inheritance (without consideration / ivazsız) Is the acquisition covered by the capital gains tax rules? No (exception for acquisitions without consideration) Is the sale subject to capital gains tax in Türkiye? No Step 3 – Conclusion Question Answer Does Türkiye have the right to tax the gain? Yes (under DTT Article 13(1)) Is the gain subject to tax under Turkish domestic law? No (acquisition without consideration – inheritance) Is a tax return required? No (no tax liability) Summary Table Factor Determination Seller French resident individual Property location Türkiye Method of acquisition Inheritance (without consideration / ivazsız) Date of acquisition Not specified (but from predecessor) Taxing right under DTT Türkiye (Article 13(1)) Subject to Turkish capital gains tax? No (acquisition without consideration is excluded) Tax return required? No Important Notes The key fact that exempts the gain from Turkish capital gains tax is that the property was acquired by inheritance (without consideration). If the property had been acquired for consideration (purchased) and sold within five years, the gain would have been subject to capital gains tax. The exemption applies regardless of the seller’s residency status (the French resident seller is exempt from Turkish capital gains tax on this transaction). 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. 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