Ruling Number: 62030549-125[3-2014/289]-92679 Introduction In a private ruling dated November 9, 2015, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed the taxation of income derived from construction work performed in Türkiye by a Greek resident company and the taxation of wage payments to personnel employed in such work. The taxpayer stated that their Greek resident company is engaged in submarine cabling and protection work, possessing specialized personnel and necessary equipment. A contract was signed with a Turkish resident company to perform 7 separate cabling works in the Çanakkale Strait (from Lapseki to Sütlüce), totaling approximately 23,500 meters. The work involves submarine cabling using the company’s personnel and the “Venom 3K-600T” machine, as well as the installation of concrete mattresses at 28 passages using a special machine “Assomat II.” The concrete mattresses will be supplied by the company and loaded from Çanakkale port in 3 campaigns. The project was planned to start in October 2014 and end in November 2014, lasting approximately 35 days. The taxpayer requested clarification on: The taxation of profits derived from these activities, and The taxation of wage payments to Greek resident personnel assigned to perform these activities. 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 listed in the article’s paragraphs. However, there is no provision requiring withholding tax on payments falling within the scope of commercial income. Income Tax Law (Law No. 193) Article 3 – Full Liability: Real persons resident in Türkiye (or Turkish citizens working abroad for certain Turkish institutions) are taxed on their worldwide income. Article 4 – Residence in Türkiye: The following persons are considered resident in Türkiye: Those whose domicile is in Türkiye; Those who stay continuously in Türkiye for more than six months in a calendar year. Article 6 – Limited Liability: Real persons not resident in Türkiye are taxed only on their income derived from Türkiye. Article 7 – Income Deemed Derived in Türkiye (for limited liability persons): 3. Wages: (a) If the service is performed or being performed in Türkiye, or utilized in Türkiye. “Utilization” means: The payment is made in Türkiye, or if the payment is made abroad, it is credited to the accounts of the payer or the person on whose behalf the payment is made in Türkiye, or separated from profits. Double Taxation Treaty Provisions Türkiye-Greece Double Taxation Treaty (Effective January 1, 2005 – entered into force March 5, 2004) Article 5 – Permanent Establishment (Paragraph 3(a)): 3. The term “permanent establishment” also includes: (a) A construction site, assembly, installation, or erection project, or supervisory activities in connection therewith, lasting more than 10 months. 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 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. Article 15 – Dependent Personal Services (Paragraphs 1 and 2): 1. Subject to Articles 16, 18, 19, and 20, salaries, wages, and other similar income derived by a resident of one Contracting State in respect of employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is exercised in the other State, such income may be taxed in that other State. 2. Notwithstanding paragraph 1, income derived by a resident of one Contracting State from employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if: (a) The recipient stays in the other State for a period or periods not exceeding 183 days in any 12-month period beginning or ending in the fiscal year concerned; (b) The payment is made by or on behalf of an employer who is not a resident of the other State; and (c) The payment is not borne by a permanent establishment or fixed base that the employer has in the other State. Ruling Conclusion The ruling addresses two separate issues: Issue 1 – Taxation of the Greek Company’s Construction Profits Factor Determination Duration of the construction project in Türkiye Approximately 35 days Threshold for permanent establishment under Article 5(3)(a) More than 10 months Does the project create a permanent establishment in Türkiye? No (35 days < 10 months) Taxing right under Article 7(1) Only Greece (since no PE in Türkiye) Withholding tax required in Türkiye? No (commercial income – no withholding under Article 30) Conclusion: The profits derived by the Greek resident company from the submarine cabling project are taxable only in Greece. Türkiye has no taxing right, and no withholding tax is required. Issue 2 – Taxation of Wage Payments to Greek Resident Personnel Factor Determination Duration of stay in Türkiye for each personnel member Approximately 35 days 183-day threshold under Article 15(2)(a) 35 days < 183 days ✓ (condition met) Employer’s residency Greek resident company – not a resident of Türkiye ✓ (condition met) Payment borne by a PE in Türkiye? No (no PE established) ✓ (condition met) All three conditions of Article 15(2) met? Yes Conclusion: Under Article 15(2) of the DTT, the wage payments to Greek resident personnel working on the project shall be taxable only in Greece. Türkiye has no taxing right. Summary Table Taxpayer Activity Duration in Türkiye PE/Stay Threshold Taxing Right Withholding Tax in Türkiye? Greek resident company (corporate) Submarine cabling construction 35 days PE: >10 months (Art. 5/3-a) Only Greece No Greek resident personnel (employees) Employment on construction site 35 days Stay: >183 days (Art. 15/2-a) Only Greece No Required Documentation for Treaty Benefits To benefit from the treaty provisions (exemption from Turkish tax), the Greek resident company and its personnel must: Obtain a Certificate of Residency from the competent Greek authorities proving that they are fully liable to tax in Greece on their worldwide income. Provide the original certificate along with a notarized or Turkish Consulate-certified Turkish translation to the payer (withholding agent) or the relevant tax office in Türkiye. If the Certificate of Residency cannot be provided: Domestic law provisions may apply. 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.