Ruling Number: B.07.1.GİB.4.06.16.01-120[94-15/57]-84136 Introduction In a private ruling dated March 17, 2017, the Ankara Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed whether withholding tax applies to interest income derived from Türkiye by a Malaysian resident pension fund. The taxpayer stated that they are an institution of the Malaysian Government and requested clarification on whether they can benefit from the tax exemption under Article 11, paragraph 4 of the Türkiye-Malaysia Double Taxation Treaty on interest income derived from Türkiye. Double Taxation Treaty Provisions Türkiye-Malaysia Double Taxation Treaty (Signed September 27, 1994, effective January 1, 1997) Article 11 – Interest: 1. Interest arising in one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such interest may also be taxed in the State in which it arises. But if the beneficial owner is a resident of the other State, the tax charged shall not exceed 15% of the gross amount of the interest. 3. Notwithstanding paragraph 2, interest paid to a resident of Türkiye shall be exempt from Malaysian tax if the debt is an approved loan as defined in section 2(1) of the Malaysian Income Tax Act 1967. 4. Notwithstanding paragraphs 2 and 3: (a) Interest arising in Malaysia and paid to the Government of Türkiye, local authorities, the Central Bank of the Republic of Türkiye, or Türkiye Export-Import Bank shall be exempt from Malaysian tax; (b) Interest arising in Türkiye and paid to: (i) the Government of Malaysia; (ii) State Governments; (iii) local authorities; and (iv)Bank Negara Malaysia shall be exempt from Turkish tax. 5. The term “interest” includes income from all kinds of receivables, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor’s profits, and in particular, income from government securities, bonds, or debentures. Ruling Conclusion Step 1 – Determine the Status of the Pension Fund Factor Determination Nature of the pension fund A legal entity wholly owned by the Malaysian Federal Government Status under Article 11(4)(b) Falls within the scope of “Government of Malaysia” Step 2 – Application of Article 11(4)(b) Factor Determination Where does the interest arise? Türkiye Who is the recipient? Malaysian Federal Government pension fund (Malaysian Government institution) Applicable treaty provision Article 11(4)(b) – interest paid to the Government of Malaysia Tax treatment in Türkiye Exempt from Turkish tax Withholding tax required? No Conclusion: The pension fund is wholly owned by the Malaysian Federal Government and therefore qualifies as the “Government of Malaysia” under Article 11(4)(b). Interest income arising in Türkiye and paid to the pension fund is exempt from Turkish tax. No withholding tax is required. Summary Table Question Answer Is the pension fund a Malaysian Government institution? Yes (wholly owned by the Malaysian Federal Government) Does the pension fund qualify under Article 11(4)(b)? Yes What is the tax treatment in Türkiye? Exempt from Turkish tax Withholding tax required in Türkiye? No Treaty provision Article 11(4)(b) – exemption Required Documentation for Treaty Benefits To benefit from the treaty exemption, the Malaysian pension fund must: Obtain a Certificate of Residency from the competent Malaysian authorities proving that it is fully liable to tax in Malaysia on its worldwide income. Provide the original certificate along with a notarized or Turkish Consulate-certified Turkish translation to the withholding agent or the relevant tax office in Türkiye. If the Certificate of Residency cannot be provided: Domestic law provisions (15% withholding tax on interest) may apply. Important Notes The exemption under Article 11(4)(b) applies to interest paid to: The Government of Malaysia, State Governments, local authorities, and Bank Negara Malaysia. The pension fund, as a wholly government-owned entity, qualifies under this provision. Interest arising in Türkiye and paid to such entities is fully exempt from Turkish withholding tax. 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. 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