Ruling Number: 62030549-120[3-2014/889]-92678 Introduction In a private ruling dated November 9, 2015, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed the taxation of payments made to a person (other than retirement severance) for working at the Istanbul branch of a company whose headquarters is in the United States. The taxpayer stated that they retired on December 31, 2014, from the Istanbul branch of a company headquartered in the United States. Apart from their retirement severance, a certain amount was transferred to their bank account in Türkiye on December 27, 2013, representing social benefits (fuel, food, health, and other personal benefits) provided in connection with their wage income. The taxpayer requested clarification on whether this income is subject to tax in Türkiye. Legal Framework – Domestic Law Income Tax Law (Law No. 193) Article 3 – Full Liability: Real persons resident in Türkiye are taxed on their worldwide income (both within and outside Türkiye). 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 (temporary absences do not interrupt the period). Article 61 – Definition of Wages: Wages are cash, benefits in kind, and other advantages provided to employees dependent on an employer and affiliated with a specific workplace in return for services. The nature of wages is not changed by being paid under different names (allowances, compensation, bonuses, premiums, expense reimbursements, etc.) or as a percentage of profits. Article 95 – Wages Not Subject to Withholding Tax (Paragraph 1(1)): The following employees’ wages are not subject to withholding tax: 1. Employees who receive their wages directly from an employer in a foreign country. Such persons must declare their income through an annual income tax return in accordance with the provisions of the second part of this section. Double Taxation Treaty Provisions Türkiye-US Double Taxation Treaty (Effective January 1, 1998) 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 continuous 12-month period; (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 Step 1 – Residency Status of the Taxpayer The taxpayer stated that they worked continuously for 35 years at the Istanbul branch of the US-headquartered company. Based on this, the taxpayer is considered a resident of Türkiye (domicile in Türkiye and/or continuous stay for more than six months). Step 2 – Characterization of the Payment The payment received (other than retirement severance) consists of social benefits (fuel, food, health, and other personal benefits) provided in connection with the taxpayer’s wage income. Under Article 61 of the Income Tax Law, such benefits are characterized as wages (since they are provided to an employee in return for services). Step 3 – Treaty Application (Article 15) Since the taxpayer is a resident of Türkiye and the employment was exercised in Türkiye (at the Istanbul branch), under Article 15(1) of the Türkiye-US DTT, the income may be taxed only in Türkiye. The exception under Article 15(2) (taxable only in the first-mentioned State) does not apply because the employment was exercised in Türkiye, not in the US. Step 4 – Domestic Tax Treatment – Withholding Tax Not Applicable The payment was made by the Istanbul branch of a US-headquartered company. However, under Article 95(1)(1) of the Income Tax Law, wages received directly from a foreign employer are not subject to withholding tax in Türkiye. Conclusion: The taxpayer must declare the payment (social benefits) through an annual income tax return. Summary Table Question Answer Is the taxpayer a resident of Türkiye? Yes (35 years of continuous work at Istanbul branch) What is the nature of the payment? Wages (social benefits – fuel, food, health, etc.) Does Türkiye have the right to tax this income? Yes (employment exercised in Türkiye) Does the US have the right to tax this income? No (employment not exercised in the US) Will withholding tax be applied in Türkiye? No (employer is a foreign employer – Article 95) Is an annual income tax return required? Yes What must be declared? The social benefits payment (other than retirement severance) Important Notes The retirement severance payment itself is not addressed in this ruling (the ruling explicitly excludes it). The ruling only addresses the social benefits (fuel, food, health, etc.) paid in connection with wage income. The taxpayer must file an annual income tax return for the calendar year in which the payment was received (December 27, 2013). 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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