Ruling Number: 64597866-120[61-2013]-14 Introduction In a private ruling dated January 25, 2013, the Large Taxpayers Tax Office (Taxpayer Services Group Directorate) addressed whether pension payments made by a company to an employee resident in the Netherlands are subject to taxation in Türkiye. The taxpayer stated that their company operates a private pension plan for its employees. Under this plan, the company (as employer) undertakes to make pension payments to employees upon meeting certain conditions. No payments are made to employees before retirement. The taxpayer noted that pension payments made to a Dutch resident employee (who retired under the plan) were subject to withholding tax in Türkiye and also taxed in the Netherlands. The taxpayer requested clarification on: Whether such payments are subject to tax in Türkiye, and If not, the steps required for a refund of taxes previously withheld. Legal Framework Income Tax Law (Law No. 193) Article 61 – Definition of Wages: Wages are defined as cash, benefits in kind, and other advantages that can be represented in monetary value provided to employees who are 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 such as allowances, compensation, cash indemnities, appropriations, bonuses, advances, dues, attendance fees, premiums, bonuses, expense reimbursements, or as a percentage of profits (provided it does not constitute a partnership relationship). Cash, benefits in kind, and other advantages provided in return for services rendered in the past or to be rendered in the future are also considered wages. Article 94 – Withholding Tax Obligation: The following persons are required to withhold income tax at the time of payment (including advance payments) on the items listed in the article: Paragraph 1: Wages paid to employees and other payments considered wages under Article 61 (except those benefiting from exemptions), subject to withholding tax in accordance with Articles 103 and 104. Double Taxation Treaty Provisions Türkiye-Netherlands Double Taxation Treaty (Effective as of January 1, 1989) Article 18 – Pensions, Annuities, and Social Security Pensions: 1. Subject to the provisions of paragraph 1 of Article 19, pensions and other similar benefits paid to a resident of one Contracting State in consideration of past employment, as well as annuities paid to such a person, shall be taxable only in that State. 2. However, such benefits that are not periodic in nature, paid to a resident of one Contracting State who is not a citizen of that State, in consideration of past employment in the other State, may be taxed in that other State. 3. Notwithstanding paragraph 1, pensions paid under the social security system of one Contracting State to a resident of the other State in consideration of past employment (or without regard to such employment) may be taxed in the first-mentioned State. However, if such pension is paid to a resident and citizen of the other State, it shall be taxable only in that other State. 4. The term “annuity” means a stated sum payable periodically at stated times during life or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money’s worth. Ruling Conclusion Key Principle – Domestic Law Characterization: Under Article 61 of the Income Tax Law No. 193, pension payments made under a private pension plan in consideration of past employment constitute wages. As such, they are generally subject to withholding tax under Article 94 at the time of payment. Key Principle – Treaty Override: However, under Article 18, paragraph 1 of the Türkiye-Netherlands DTT, pensions and similar benefits paid to a resident of one Contracting State in consideration of past employment shall be taxable only in that State. Application to the Case: The employee is a resident of the Netherlands. The pension payments are made in consideration of past employment. Therefore, the exclusive taxing right belongs to the Netherlands. Türkiye does not have the right to tax these pension payments. Consequence: The company should not withhold tax on pension payments made to a Dutch resident employee who provides a valid Certificate of Residency. Refund Procedure for Previously Withheld Taxes If withholding tax was previously applied to such payments, the taxpayer may apply for a refund of the withheld taxes. The application should be submitted to the Taxation Directorate of the Revenue Administration. Summary Table Factor Determination Nature of payment Pension (considered wages under domestic law) Recipient Employee resident in the Netherlands Treaty article Article 18, paragraph 1 Taxing right under treaty Only the Netherlands Withholding tax required in Türkiye? No (if Certificate of Residency provided) Refund available for past withholding? Yes – apply to Taxation Directorate Required document Certificate of Residency from Dutch authorities Required Documentation To benefit from the treaty exemption, the Dutch resident employee must: Obtain a Certificate of Residency from the competent Dutch authorities proving full residency in the Netherlands. Provide the certificate (along with a notarized or Turkish Consulate-certified Turkish translation, if required) to the employer (withholding agent). 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. 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