Ruling Number: 49327596-125[KVK.2014.ÖZ.53]-121259 Introduction In a private ruling dated September 2, 2016, the Antalya Tax Office (Taxpayer Services Income Group Directorate) addressed the taxation of membership fees paid to a Swiss resident company. The taxpayer stated that they are accepted as an “independent member firm” of a foreign organization operating in Switzerland under a specific name. There is no service partnership, commercial relationship, or fund transfer between the organization and its member firms. Members are granted only the right to use the organization’s logo (indicating membership), to mention their membership in printed/visual promotional documents, and to participate in conferences and mutual personnel exchange programs provided to members. Under the contract, a one-time entry fee and annual membership dues will be paid. The taxpayer requested clarification on whether withholding tax applies to these payments. Part I – Domestic Law Analysis 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(2) – Withholding Tax for Limited Liability Taxpayers: Withholding tax applies to payments made for the sale, transfer, or assignment of intangible rights such as: Copyrights, Patents, Trademarks, Trade names, And similar intangible rights, regardless of whether they are included in commercial or agricultural income. Council of Ministers Decree No. 2009/14593: The withholding tax rate for intangible rights (royalties) is 20%. Part II – Double Taxation Treaty Analysis Türkiye-Switzerland Double Taxation Treaty (Published in Official Gazette No. 28171 on January 12, 2012 – entered into force February 8, 2012 – effective January 1, 2013) Article 12 – Royalties: 1. Royalties arising in one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties may also be taxed in the State in which they arise. But if the beneficial owner is a resident of the other State, the tax charged shall not exceed 10% of the gross amount of the royalties. 3. The term “royalties” includes payments of any kind for the use of, or the right to use: Any copyright of literary, artistic, or scientific work (including cinema films and radio or television recordings), Any patent, trademark, design, plan, secret formula, or manufacturing process, Industrial, commercial, or scientific know-how, Industrial, commercial, or scientific equipment. Part III – Ruling Conclusion Step 1 – Characterization of the Payments The ruling finds that the organization is more than a simple industry directory; it markets its own brand value. The membership fees are payments made in exchange for the right to benefit from the rights and privileges provided by the organization. Factor Determination Nature of the organization Markets its own brand value (not a simple directory) Nature of membership fees Payment in exchange for the right to benefit from the organization’s rights and privileges Characterization Royalties (intangible rights – use of trademark/brand) Step 2 – Domestic Rate vs. Treaty Rate Rate Type Percentage Domestic withholding tax rate (intangible rights) 20% Treaty rate (Article 12(2)) 10% Applicable withholding tax rate 10% (treaty rate overrides domestic rate) Step 3 – Conclusion Type of Payment Characterization Withholding Tax Required? Rate One-time entry fee Royalty (intangible right) Yes 10% Annual membership dues Royalty (intangible right) Yes 10% Summary Table Question Answer What is the nature of the membership fees? Royalty (payment for use of trademark/brand and membership rights) Domestic withholding tax rate 20% Treaty reduced rate (Article 12(2)) 10% Applicable withholding tax rate in Türkiye 10% Withholding tax required on entry fee? Yes Withholding tax required on annual dues? Yes Required document Certificate of Residency from Swiss authorities Required Documentation for Treaty Benefits To benefit from the reduced treaty rate (10% instead of 20%), the Swiss resident company must: Obtain a Certificate of Residency from the competent Swiss authorities proving that it is fully liable to tax in Switzerland on its worldwide income. Provide the original certificate along with a notarized or Turkish Consulate-certified Turkish translation to the withholding agent (the taxpayer) or the relevant tax office. If the Certificate of Residency cannot be provided: Domestic law provisions (20% withholding tax) will apply instead of the treaty provisions. Important Notes The key factor is that the organization is not merely a simple industry directory but markets its brand value. Membership fees are payments for the right to use the organization’s brand and benefit from its rights/privileges. The one-time entry fee and annual membership dues are both characterized as royalties (intangible rights) because they are paid in exchange for the right to use the organization’s trademark and brand. The 10% rate applies to both the entry fee and annual dues. The taxpayer must withhold tax at the time of payment and declare it to the tax office. 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. 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