Ruling Number: 62030549-125[23-2015/262]-72063 Introduction In a private ruling dated June 2, 2016, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed the taxation of income derived in Türkiye by shipowners resident in the People’s Republic of China. The taxpayer stated that a ship agency contract was entered into with a Chinese resident shipowner company for international maritime transportation. The taxpayer requested clarification on: How freight amounts collected from cargo owner companies and paid directly to the shipowner should be taxed under the Double Taxation Treaty and the Corporate Tax Law; and Whether various port services (storage, terminal, discharge, loading, supervision, security, etc.) provided for goods subject to maritime transportation should be treated as freight revenue. Part I – Domestic Law (Corporate Tax Law No. 5520) Article 3 – Limited Liability: Corporations whose legal and business centers are both not located in Türkiye are taxed only on their income derived from Türkiye. Article 22(2): For limited liability corporations, for income other than commercial or agricultural income, the provisions of the Income Tax Law regarding the determination of such income apply. Article 23 – Special Taxation Regime for Foreign Transportation Corporations: (1) The corporate income base for foreign transportation corporations is calculated by applying average standard ratios to gross revenue. (2) Average standard ratios for all corporations operating permanently or occasionally in Türkiye: (a) Land transportation: 12% (b) Maritime transportation: 15% (c) Air transportation: 5% (3) Gross revenue deemed derived in Türkiye for foreign transportation corporations subject to limited liability on commercial and incidental commercial income consists of: (b) Passenger, cargo, and baggage transportation fees (including expense reimbursements collected with ticket fees) for maritime and air transportation from Turkish loading ports to foreign destination ports or to foreign ports where transshipment to another carrier’s vessel occurs. (c) Commissions and fees received from selling passenger and baggage tickets in Türkiye for transportation activities outside Türkiye, or from freight contracts made in Türkiya on behalf of other carriers. Scope Limitation: This special regime applies only to transportation activities carried out between Türkiye and foreign countries. If the transportation activity begins and ends within Türkiye (domestic transportation), general tax provisions apply. Excluded Services: The following services provided in connection with maritime transportation are NOT covered under Article 23: Service Type Examples Inland transport to loading port Transportation to the loading port Loading and unloading services Loading, discharge Customs-related services Temporary customs clearance, document preparation Port services Storage, terminal, supervision, security Treatment: Revenue from such services must be determined separately and taxed under general provisions of the Corporate Tax Law. Part II – Double Taxation Treaty Provisions Türkiye-China Double Taxation Treaty (Effective January 1, 1998 – entered into force January 20, 1997) Article 3(h) – Definition of “International Traffic”: “International traffic” means any transport by a ship, aircraft, or road vehicle operated by an enterprise that has its legal center in one Contracting State. However, transport solely between places within the other Contracting State is not included. Article 8 – Shipping, Air, and Land Transport: 1. Profits derived by an enterprise of one Contracting State from the operation of ships, aircraft, or road vehicles in international traffic shall be taxable only in that State. 2. The provisions of paragraph 1 shall also apply to profits derived from participation in a pool, a joint business, or an internationally operated agency. Ruling Conclusion Step 1 – International Maritime Transportation Income (Core Freight) Factor Determination Type of transportation International maritime traffic (between Türkiye and foreign countries) Treaty article Article 8(1) Taxing right under treaty Only China (exclusive taxing right) Domestic tax regime Not applicable (treaty overrides) Withholding tax in Türkiye? No Step 2 – Ancillary Services (Not Part of Core Transportation) The following services are NOT covered under Article 8 of the DTT or Article 23 of the Corporate Tax Law: Storage (ardiye) Terminal services Discharge (tahliye) Loading (yükleme) Supervision (nezaret) Security (güvenlik) Transportation to loading port Temporary customs clearance Document preparation Factor Determination Characterization Independent services (not part of international traffic profits) Treaty applicable Other articles (e.g., Article 7 – Business Profits if PE exists, or Article 14 – Professional Services) Domestic tax treatment General provisions of Corporate Tax Law (not the 15% deemed profit regime) Withholding tax in Türkiye? Yes (if services are performed in Türkiye – 20% for professional services) Step 3 – Domestic Transportation (Türkiye to Türkiye) If the transportation activity begins and ends within Türkiye: Factor Determination Type of transportation Domestic (not international traffic) Treaty application Not covered by Article 8 Domestic tax treatment General provisions of Corporate Tax Law Taxing right Only Türkiye Summary Table Type of Income DTT Article Taxing Right Domestic Regime Withholding Tax in Türkiye? International freight (Türkiye ↔ foreign) Art. 8 Only China Not applicable No Ancillary port services (storage, loading, discharge, security, etc.) Not Art. 8 Türkiye (if performed in Türkiye) General provisions Yes (20% for professional services) Domestic transportation (within Türkiye) Not Art. 8 Only Türkiye General provisions Yes (as applicable) Required Documentation for Treaty Benefits To benefit from the treaty provisions (exclusive taxing right of China under Article 8), the Chinese resident shipowner must: Obtain a Certificate of Residency from the competent Chinese authorities proving that it is fully liable to tax in China on its worldwide income (full liability status). Provide the original certificate along with a notarized or Turkish Consulate-certified Turkish translation to: The relevant tax office, or The withholding agent (if withholding tax is applied). If the Certificate of Residency cannot be provided: Domestic law provisions may apply, and Türkiye could potentially tax the income. Important Notes The 15% deemed profit regime under Article 23 of the Corporate Tax Law applies only to foreign transportation corporations’ core international freight income and only when the treaty does not grant exclusive taxing right to the other State. Under the Türkiye-China DTT, Article 8 grants exclusive taxing right to China for international traffic profits. Therefore, the domestic deemed profit regime (15%) is not applicable in Türkiye. Ancillary port services (storage, terminal, discharge, loading, supervision, security) are not part of international traffic profits and are subject to separate taxation under general provisions. 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.