Ruling Number: 84098128-125[6-2015/3]-101692 Introduction In a private ruling dated October 19, 2016, the Izmir Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed the taxation of sports agency commission income earned by a Turkish resident company and the dividend income of its sole shareholder (a Blue Card holder German citizen) under the Corporate Tax Law, Income Tax Law, Value Added Tax Law, and the Double Taxation Treaty. The taxpayer stated that: Their company is established as a single-shareholder company by a Blue Card holder German citizen. The company’s main activity is sports agency. Commission income was earned from a transfer agreement for a foreign footballer playing in Germany. The income was declared and paid as the company’s operating income. The service was provided abroad (the beneficiary is abroad) and the money came to Türkiye in foreign currency. No VAT was calculated because the service was provided abroad. The company shareholder has domicile in both Türkiye and Germany and spends 7 months in Germany and 5 months in Türkiye per year. The taxpayer requested clarification on the tax treatment for both the company and its shareholder. Part I – Corporate Tax Analysis Corporate Tax Law (Law No. 5520) Article 1: Lists corporations subject to corporate tax. Article 3(2) – Full Liability: Corporations whose legal or business center is located in Türkiye are taxed on their worldwide income. Article 6 – Corporate Income Base: Corporate tax is levied on net corporate income, determined according to the commercial income provisions of the Income Tax Law No. 193. Ruling Conclusion – Corporate Tax: Factor Determination Company’s residence Türkiye (full liability taxpayer) Nature of income Commission income from sports agency services Tax treatment Included in the corporate income base for the relevant period Withholding tax Not applicable on the company’s operating income (commission) Conclusion: The commission income must be included in the company’s corporate income tax base and taxed at the corporate tax rate (20% for the relevant period). Part II – Income Tax Analysis (Shareholder’s Dividend Income) Income Tax Law (Law No. 193) Article 3 – Full Liability: Real persons resident in Türkiye are taxed on their worldwide income. Article 4 – Residence in Türkiye: The following persons are considered resident: Those whose domicile is in Türkiye; Those who stay continuously in Türkiye for more than six months in a calendar year. Article 75 – Movable Capital Income: Paragraph 1: Dividends, interest, rents, and similar income derived from monetary capital or values represented by money (outside the taxpayer’s commercial, agricultural, or professional activities) constitute movable capital income. Paragraph 2(1): Dividends from shares of any kind constitute movable capital income, regardless of their source. Article 22(2) – Half Exemption: 50% of dividends received from full liability corporations (under Article 75(2)(1), (2), and (3)) is exempt from income tax. The exempt amount is subject to withholding tax under Article 94. The withheld tax may be credited against the tax calculated on the annual return (if filed). Article 86(1)(c) – No Annual Return Required (Full Liability Taxpayers): No annual return is required if the total taxable income (excluding wages, etc.) does not exceed the second income bracket threshold (TL 26,000 for 2013), provided the income has been subject to withholding tax in Türkiye. Article 86(2) – No Annual Return Required (Limited Liability Taxpayers): No annual return is required for income fully subject to withholding tax in Türkiye (wages, professional service income, movable and immovable capital income, etc.). Article 94(6)(b)(i) – Withholding Tax on Dividends: Recipient Withholding Tax Rate Full liability real persons, non-taxpayers, and exempt persons 15% Limited liability real persons and limited liability corporations (except those receiving dividends through a PE) 15% Ruling Conclusion – Shareholder’s Dividend Income: Factor Determination Shareholder’s residence Türkiye (domicile in Türkiye) Nature of income Dividend (movable capital income) Withholding tax applied by company 15% (under Article 94) 50% exemption (Article 22(2)) Applicable (50% of dividends exempt) Annual return required? No (if total income does not exceed the second bracket threshold) Part III – Double Taxation Treaty Analysis Türkiye-Germany Double Taxation Treaty (Effective January 1, 2011) Article 7 – Business Profits (Paragraphs 1 and 2): 1. Profits of an enterprise of one Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If it does, the profits may be taxed in the other State but only so much as is attributable to that PE. 2. Where an enterprise carries on business through a PE, there shall be attributed to that PE the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities. Article 5 – Permanent Establishment: Defines when a PE exists in the other State. Ruling Conclusion – Company’s Commission Income: Factor Determination Location of the service Germany (footballer transfer) Does the company have a PE in Germany? No (based on the facts) Taxing right under Article 7 Only Türkiye (since no PE in Germany) Does Germany have the right to tax? No (unless a PE exists in Germany) Foreign tax credit If Germany taxes (due to PE), credit available under Article 22 Required Documentation for Treaty Benefits: To benefit from the treaty provisions (if any), the taxpayer must obtain a Certificate of Residency from the Turkish authorities and submit it to the German authorities (Circular No. 3 on Double Taxation Treaties, dated December 20, 2013). Part IV – VAT Analysis Value Added Tax Law (Law No. 3065) Article 1(1): Supplies and services performed in Türkiye are subject to VAT. Article 4: Services are transactions other than supplies (performing, processing, producing, repairing, etc.). Article 6(b): A service is deemed performed in Türkiye if it is performed in Türkiye or benefited from in Türkiye. VAT General Application Communiqué (Section I-A/6.2): For services to be subject to VAT, either: The service is performed in Türkiye, OR The service is benefited from in Türkiye. If the service is performed abroad and benefited from abroad, it is not subject to VAT. Ruling Conclusion – VAT: Factor Determination Where was the service performed? Germany (transfer of footballer playing in Germany) Where was the service benefited? Germany (beneficiary is abroad) Is the service subject to VAT? No (performed and benefited from abroad) Conclusion: No VAT is required on the invoice. Summary Table Tax Type Taxpayer / Entity Income Type Tax Treatment Rate / Notes Corporate Tax Company Commission income (sports agency) Included in corporate income base Corporate tax rate (20%) Income Tax Shareholder (Blue Card holder) Dividend income 50% exemption (Art. 22/2); 15% withholding No annual return required (if within threshold) DTT Company Commission income Taxable only in Türkiye (no PE in Germany) No German tax (unless PE exists) VAT Company Commission income Not subject to VAT 0% (performed and benefited abroad) Important Notes Blue Card holder: The shareholder is a Blue Card holder (Turkish citizen residing abroad under certain conditions) but has a domicile in Türkiye. Therefore, they are treated as a full liability taxpayer in Türkiye. Dividend income: The 50% exemption under Article 22(2) applies to dividends received from full liability corporations. The 15% withholding tax is final for most taxpayers. PE analysis: The company does not have a PE in Germany, so the commission income is taxable only in Türkiye under the DTT. VAT: Since the service was performed and benefited from outside Türkiye, no VAT applies. 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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