Ruling Number: B.07.1.GİB.0.09.86-030.01-13 Introduction In a private ruling dated August 11, 2011, the Ministry of Finance, Revenue Administration (Double Taxation Treaty Department) addressed whether activities performed in Türkiye by a Romanian resident company – namely platform installation and pipeline construction – are subject to taxation under the Türkiye-Romania Double Taxation Treaty and the Corporate Tax Law. The taxpayer stated that a contract was signed between their partnership and a Romanian resident company for the turnkey delivery of a drilling/production platform and an offshore pipeline. The project began in September 2008 and was expected to be completed in 2010. The contract covered: Drilling, Installation of the wellhead platform, Engineering, procurement, manufacturing, transportation, and construction services, Construction of a pipeline to connect natural gas to the existing system. The work consisted of two phases: Phase 1: Manufacturing of the platform in Romania and importation to Türkiye. Phase 2: Platform installation and pipeline construction in Türkiye, with an estimated duration of approximately three months. The taxpayer requested clarification on whether Türkiye has the right to tax the income derived from these activities under the Türkiye-Romania Double Taxation Treaty and the Corporate Tax Law. Legal Framework Türkiye-Romania Double Taxation Treaty (Effective as of January 1, 1989) Article 5 – Permanent Establishment: Paragraph 2(g) states: “(g) (i) a construction site, assembly, installation, or erection project lasting more than six months; (ii) services, including consultancy services, performed by an enterprise through employees or other personnel engaged for such purpose, where such activities continue for a period or periods exceeding six months within any twelve-month period for the same or connected project. The Contracting States are free to tax by withholding from gross revenues or to tax on a net income basis according to their domestic laws.” Ruling Conclusion Key Principle: If construction, assembly, installation, or erection activities undertaken in Türkiye exceed a period of six months, the income derived from such activities shall be taxable in Türkiye, but only to the extent attributable to the permanent establishment in Türkiye, in accordance with domestic tax laws. Application to the Case: According to the taxpayer’s statement and the attached project schedule, the platform installation and pipeline laying activities in Türkiye were planned to begin in April 2010 and end by June 2010 – a duration of approximately three months, which does not exceed the six-month threshold. Therefore, Türkiye does not have the right to tax the income derived by the Romanian company from this project. Contingency Statement If the planned activities in Türkiye cannot be completed within the projected period and continue for longer than the six-month period stipulated in the treaty, the Romanian company shall be deemed to have a permanent establishment in Türkiye. In that case, the income attributable to that permanent establishment shall be subject to taxation in Türkiye, limited to the amount attributable to the permanent establishment. Summary Table Duration of Activities in Türkiye Permanent Establishment Status Taxability in Türkiye ≤ 6 months No permanent establishment Not taxable > 6 months Permanent establishment deemed Taxable (attributable profits only) 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. 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.