Ruling Number: 18008620-125[ÖZG-2013-7]-125 Introduction In a private ruling dated December 3, 2013, the Mersin Tax Office (Taxpayer Services Group Directorate) addressed the taxation of various types of income derived from maritime transportation activities by a French resident limited liability company (shipowner) operating through an agency in Türkiye. The taxpayer, acting as an agent, requested clarification on: How income derived by a French resident limited liability company should be taxed under the Türkiye-France Double Taxation Treaty and the Corporate Tax Law No. 5520, Which types of income are covered by “international traffic revenue” for maritime transportation companies whose management center is in France, Whether pre-loading or post-discharge services should be added to the lump-sum tax base for transportation, Whether income derived from participation in an agency established as a limited company falls under Article 8, paragraph 2 of the DTT. Legal Framework – Domestic Law Corporate Tax Law (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 6 – Corporate Income Base: Corporate tax is levied on net corporate income. The determination of net corporate income follows the commercial income provisions of the Income Tax Law No. 193. 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 Türkiye on behalf of other carriers. Important 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, and the income is taxable only in Türkiye. Excluded Services: Services provided before loading (e.g., transportation to the loading port) or after discharge (e.g., unloading services) that can be provided independently of the maritime transport activity are not covered under Article 23. Revenue from such services must be determined separately and taxed under general provisions. Double Taxation Treaty Provisions Türkiye-France Double Taxation Treaty Article 3(j) – Definition of “International Traffic”: “International traffic” means any transport by a ship, aircraft, or road vehicle operated by an enterprise of Türkiye or France. Transportation carried out solely within the borders of Türkiye or France 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 1. International Maritime Transportation Income Condition Taxing Right Transportation is “international traffic” (between Türkiye and foreign countries) Only France (exclusive taxing right) Transportation is solely within Türkiye (domestic) Only Türkiye (general provisions apply) Under Article 8(1) of the DTT, profits derived by a French resident maritime transportation enterprise from international traffic shall be taxable only in France. Türkiye has no taxing right over such income. 2. Ancillary Services (Pre-Loading / Post-Discharge) The following services are not covered under Article 8 or Article 23 of the Corporate Tax Law: Transportation to the loading port (inland transportation), Loading and unloading services that can be provided independently of the maritime transport activity. Treatment: Revenue from such services must be: Determined separately, Taxed under general provisions of the Corporate Tax Law (not the special regime of Article 23). 3. Article 8(2) – Participation in an Agency Article 8(2) provides that the exclusive taxing right in the State of residence also applies to profits derived from participation in: A pool, A joint business, or An internationally operated agency. Purpose: This provision ensures that if French resident maritime transportation enterprises enter into international transport cooperation arrangements and derive Turkish-source income, the profits from maritime transportation remain taxable only in France (benefiting the French resident enterprise). Reciprocity: The same provision applies to Turkish resident enterprises deriving transportation income from France. Summary Table Type of Activity Scope Taxing Right Applicable Regime International maritime traffic (Türkiye ↔ foreign countries) Covered by DTT Article 8(1) Only France DTT (exemption in Türkiye) Domestic maritime traffic (within Türkiye) Not “international traffic” Only Türkiye General provisions (Article 23 or general corporate tax) Pre-loading transport to port Not covered by Article 8 Türkiye (if derived in Türkiye) General provisions Loading/unloading services (independent of transport) Not covered by Article 8 Türkiye (if derived in Türkiye) General provisions Participation in pool/joint business/international agency Covered by DTT Article 8(2) Only France (same as Article 8(1)) DTT Required Documentation for Treaty Benefits To benefit from the treaty provisions, the French resident enterprise must: Obtain a Certificate of Residency from the competent French authorities proving that it is fully liable to tax in France on its worldwide income. 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). 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. 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