Ruling Number: 62030549-125[30-2012/131]-51 Introduction In a private ruling dated January 16, 2013, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed whether withholding tax paid in India on consulting fees can be set off against corporate income tax and corporate provisional tax in Türkiye. The taxpayer stated that their company provided consulting services to an Indian resident pharmaceutical company without having a place of business in India. The taxpayer issued an invoice for the consulting services. When making the payment, the Indian resident company withheld tax at a rate of 10% under Indian tax law and paid the withheld amount to the competent Indian authorities on behalf of the taxpayer. The taxpayer requested clarification on whether the withholding tax paid in India can be set off against corporate income tax and corporate provisional tax payable in Türkiye. Legal Framework Corporate Tax Law (Law No. 5520) Article 3 (Full Liability): Corporations whose legal or business center is located in Türkiye are taxed on their worldwide income. 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. Double Taxation Treaty Provisions Türkiye-India Double Taxation Treaty (Effective January 1, 1994) 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 of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment. 2. Subject to paragraph 3, where an enterprise of one Contracting State carries on business through a permanent establishment in the other Contracting State, there shall be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. Article 5 – Permanent Establishment: Defines when a permanent establishment exists in the other State. Article 22 – Elimination of Double Taxation (Paragraph 3): 3. For residents of Türkiye, double taxation shall be eliminated as follows: (a) Where a resident of Türkiye derives income which, in accordance with the provisions of this Treaty, may be taxed in India (other than income covered under subparagraph b), Türkiye shall exempt such income from tax. However, Türkiye may, in calculating tax on the remaining income of that person, apply the rate of tax which would have been applicable if the exempted income had not been so exempted. (b) Where a resident of Türkiye derives income which, in accordance with Articles 10 (Dividends), 11 (Interest), 12 (Royalties), and Article 13(4) (Capital Gains), may be taxed in India, Türkiye shall allow a foreign tax credit equal to the amount of tax paid in India. Ruling Conclusion Key Principle: Under Article 7 of the Türkiye-India DTT, the right to tax consulting services is allocated as follows: Location of Services Permanent Establishment in India? Taxing Right Services provided from Türkiye (no place of business in India) No Only Türkiye Services provided through a permanent establishment in India Yes Both Türkiye and India (limited to PE-attributable profits) Application to the Case: The taxpayer stated that their company does not have a place of business in India. Therefore: The consulting services are provided from Türkiye. India does not have the right to tax the income derived from these services under Article 7. The exclusive taxing right belongs to Türkiye. Consequences for the Withholding Tax Paid in India: Since India had no taxing right under the treaty: The 10% withholding tax paid to the Indian authorities was not legally due under the treaty. Article 22(3)(a) – which provides for exemption – applies only to income that “may be taxed in India” under the treaty. Here, India has no taxing right. Article 22(3)(b) – which provides for a foreign tax credit – applies only to income covered under Articles 10, 11, 12, and 13(4). Consulting services under Article 7 are not covered. Therefore, the withholding tax paid in India cannot be set off (credited) or exempted against corporate income tax or corporate provisional tax in Türkiye. Summary Table Question Answer Does India have the right to tax the consulting income? No (no permanent establishment in India) Exclusive taxing right belongs to? Türkiye Can the Indian withholding tax be credited in Türkiye? No – credit only applies to dividends, interest, royalties, and certain capital gains Can the Indian withholding tax be exempted in Türkiye? No – exemption applies only to income that may be taxed in India under the treaty What should the taxpayer do? Claim refund of the Indian withholding tax from Indian authorities (since India had no taxing right) Practical Note Since India did not have the right to tax the consulting income under the treaty, the taxpayer should apply for a refund of the 10% withholding tax from the competent Indian authorities, rather than seeking a credit or exemption in Türkiye. 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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