Ruling Number: 38418978-120[61-15/8]-96796 Introduction In a private ruling dated May 24, 2016, the Ankara Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed the taxation of wages paid to temporarily assigned personnel in Croatia under an EU-IPA (Instrument for Pre-Accession Assistance) project. The taxpayer stated that they work as a specialist in a Turkish public institution. They were temporarily assigned to Croatia for a period from November 4, 2014, to May 2, 2015, under a program supported by the IPA. Under the project agreement, a daily payment of €80 was determined for the temporarily assigned specialist. The project is tax-exempt under the IPA framework. However, Croatia, under its new income tax law effective January 1, 2015, treated the payment as secondary income and subjected it to 25% tax. The taxpayer requested clarification under the Türkiye-Croatia Double Taxation Treaty. Double Taxation Treaty Provisions Türkiye-Croatia Double Taxation Treaty (Signed September 22, 1997, effective January 1, 2001) Article 4 – Resident: “Resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of their home, domicile, place of management, or any other criterion of a similar nature.” 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 12-month period beginning or ending in the calendar year concerned; (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. Article 22 – Elimination of Double Taxation (Paragraph 1(a)): 1. For residents of Türkiye: (a) Where a resident of Türkiye derives income which, under this Treaty, may be taxed in Croatia (other than income covered in subparagraph b), Türkiye shall exempt such income from tax. However, Türkiye may, in calculating tax on the remaining income, apply the rate of tax which would have been applicable if the exempted income had not been so exempted (exemption with progression). IPA Framework Agreement and Tax Exemption IPA Framework Agreement (Signed July 11, 2008, approved by Law No. 5824) Article 26(2)(c): Income derived by real persons who are not Turkish citizens and do not reside in Türkiye from the performance of services, works, grants, or twinning contracts financed by the Community and the Beneficiary’s co-financing contribution shall not be subject to income tax in Türkiye. Legal persons shall also be subject to the same provision, provided they have no place of business or fixed base in Türkiye. IPA General Communiqué No. 1 (Published in Official Gazette No. 27222 on May 8, 2009): The IPA exemption applies only to: Real persons who are not Turkish citizens and do not reside in Türkiye (contractors and their employees). No exemption is provided for Turkish citizens residing in Türkiye. Ruling Conclusion Step 1 – Determine Residency Status Factor Determination Taxpayer’s citizenship Turkish citizen Taxpayer’s residence Türkiye (domicile in Türkiye) Residency under Article 4 Türkiye Step 2 – Application of Article 15 (Dependent Personal Services) Factor Determination Where was the employment exercised? Croatia (temporary assignment) Duration of stay in Croatia November 4, 2014 – May 2, 2015 (approximately 180 days? The ruling indicates 183-day threshold is relevant) Who made the payment? Croatian resident institution (as understood from the documents) Condition (a) – stay ≤183 days? Stay is less than 183 days (approx. 180 days) – YES Condition (b) – employer not resident of Croatia? NO – employer is Croatian resident Condition (c) – payment not borne by a PE in Croatia? N/A Conclusion under Article 15(2): Since condition (b) is not met (the employer is a resident of Croatia), the exception does not apply. Therefore, Croatia has the right to tax the wages. Step 3 – Turkish Tax Treatment (Exemption under Article 22) Under Article 22(1)(a) of the DTT, since the income “may be taxed in Croatia” under the treaty, Türkiye shall exempt such income from Turkish tax (exemption with progression). Factor Determination Does Turkey have the right to tax? Yes (as residence State) Under DTT Article 22(1)(a), should Turkey tax? No – exemption applies Is an annual return required in Türkiye? No (exempt income, no other declarable income) Step 4 – IPA Exemption Not Applicable The IPA tax exemption does not apply to the taxpayer because: IPA Exemption Condition Met? Not a Turkish citizen No (taxpayer is Turkish citizen) Does not reside in Türkiye No (taxpayer resides in Türkiye) Conclusion: The IPA exemption is not available to Turkish citizens residing in Türkiye. Summary Table Question Answer Is the taxpayer a resident of Türkiye? Yes Where was the employment exercised? Croatia Does Croatia have the right to tax the wages? Yes (employer is Croatian resident) Does Türkiye have the right to tax the wages? Yes (as residence State), but exemption applies under DTT Article 22 IPA exemption applicable? No (Turkish citizen residing in Türkiye) Is an annual return required in Türkiye? No (exempt income, no other declarable income) Double taxation? Croatia taxes; Türkiye exempts → no double taxation Important Notes The IPA exemption is limited to non-Turkish citizens not residing in Türkiye. Turkish citizens assigned to IPA projects abroad do not benefit from the exemption. Under the DTT Article 15, Croatia has the right to tax because the employer is a Croatian resident (condition (b) fails). Under DTT Article 22, Türkiye exempts the same income from tax, eliminating double taxation. The taxpayer does not need to file an annual return in Türkiye for this income (exempt income, no other declarable income). 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. 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