Ruling Number: 84098128-125[30-2014/3]-503 Introduction In a private ruling dated November 16, 2015, the Izmir Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed whether withholding tax applies to dividends to be distributed to Greek resident legal and real persons. The taxpayer stated that their company has three shareholders, two of which are Greek resident legal entities and one is a Greek resident real person (individual). The company plans to distribute the profits earned in 2013 to these shareholders. The taxpayer requested clarification on: Whether the dividends are covered by the double taxation treaty, At what rate and on which tax return the withholding tax should be declared, and The timing of such declaration. Legal Framework – Domestic Law Corporate Tax Law (Law No. 5520) Article 3(2) – Limited Liability: Corporations whose legal and business centers are both not located in Türkiye are taxed only on their income derived from Türkiye. Article 30 – Withholding Tax for Limited Liability Taxpayers: Paragraph 1: A 15% withholding tax applies to dividends and other income paid or accrued to limited liability corporations (including advances). Paragraph 3: Full liability corporations (such as the taxpayer) distributing dividends to limited liability corporations (except those receiving dividends through a permanent establishment in Türkiye) or to limited liability taxpayers exempt from corporate tax must also withhold tax at 15% on the dividends (except for certain types of profit distributions specified in Article 75(2)(1), (2), and (3) of the Income Tax Law). 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 in Türkiye: Those whose domicile is in Türkiye; Those who stay continuously in Türkiye for more than six months in a calendar year. Article 6 – Limited Liability: Real persons not resident in Türkiye are taxed only on their income derived from Türkiye. Article 94 – Withholding Tax Obligation (Paragraph 1, subparagraph 6(b)(ii)): Full liability corporations distributing dividends to: Limited liability real persons (individuals), and Limited liability taxpayers exempt from income tax, are required to withhold tax at 15% on the dividends specified in Article 75(2)(1), (2), and (3) (except where profit is capitalized, which is not considered a distribution). Article 31 – Withholding Tax Return (Muhtasar Return): Persons required to withhold tax under Article 30 of the Corporate Tax Law must declare the withheld taxes to their local tax office using a withholding tax return (muhtasar beyanname) within the periods and according to the procedures set forth in the Income Tax Law. Double Taxation Treaty Provisions Türkiye-Greece Double Taxation Treaty (Published in Official Gazette No. 25390 on March 2, 2004, effective January 1, 2005) Article 10 – Dividends: 1. Dividends paid by a company resident in one Contracting State to a resident of the other Contracting State may be taxed in that other State. 2. However, such dividends may also be taxed in the State where the paying company is resident, according to its domestic laws. But if the beneficial owner of the dividends is a resident of the other State, the tax charged shall not exceed 15% of the gross amount of the dividends. The competent authorities of the Contracting States shall determine the method of application of this limitation by mutual agreement. This paragraph shall not affect the taxation of the company on the profits out of which the dividends are paid. 3. The term “dividends” includes income from shares, founders’ shares, or other rights (not being debt-claims) participating in profits, as well as income from other corporate rights treated the same as income from shares under the tax laws of the State where the distributing company is resident, and income from investment funds and investment trusts. 4. Where a company of one Contracting State derives profits from the other Contracting State through a permanent establishment, those profits (after taxation under Article 7) may be taxed on the remaining amount in the other State in accordance with paragraph 2 of this Article. 5. If the beneficial owner of the dividends carries on business through a permanent establishment in the other State, and the holding giving rise to the dividends is effectively connected with such permanent establishment, then paragraph 1 and 2 shall not apply. In such case, Article 7 (Business Profits) or Article 14 (Professional Services) shall apply. Article 22 – Elimination of Double Taxation (Paragraph 1): Where a resident of one Contracting State derives income which, in accordance with this Treaty, may be taxed in the other Contracting State, the first-mentioned State shall allow as a credit against its tax on the income of that resident an amount equal to the tax on income paid in that other State. However, such credit shall not exceed the amount of tax calculated before the credit on the income that may be taxed in that other State. Ruling Conclusion Step 1 – Treaty Entitlement The shareholders are residents of Greece (two legal entities and one real person). Under Article 10(1) of the Türkiye-Greece DTT, Greece has the right to tax the dividends. Step 2 – Turkish Withholding Tax (Source State) Türkiye (as the source State) also has the right to tax the dividends under Article 10(2). However, since the beneficial owners are residents of Greece, the Turkish withholding tax shall not exceed 15% of the gross amount of the dividends. Type of Shareholder Domestic Withholding Tax Rate Treaty Maximum Rate Applicable Rate Greek resident legal entity 15% 15% 15% Greek resident real person (individual) 15% 15% 15% Step 3 – Exception (Effective Connection with a PE or Fixed Base in Türkiye) If the Greek resident shareholders: Carry on business in Türkiye through a permanent establishment, OR Perform professional services in Türkiye through a fixed base, AND the dividend income is effectively connected with that PE or fixed base, then Article 10(2) (15% limit) does not apply. Instead, the dividends are taxed under: Article 7 (Business Profits) for corporate shareholders, or Article 14 (Professional Services) for individual shareholders, and the rate may be higher (up to the standard corporate or income tax rates). Step 4 – Foreign Tax Credit Under Article 22(1), if Türkiye taxes the dividends (at 15%), the tax paid in Türkiye may be credited against the Greek tax liability on the same dividend income, eliminating double taxation. Step 5 – Declaration and Payment The taxpayer (as the distributing company) must: Withhold the tax at the time of payment (or accrual) of the dividends, Declare the withheld tax on a withholding tax return (muhtasar beyanname) to the local tax office, Pay the withheld tax within the prescribed periods. Required Documentation for Treaty Benefits To benefit from the treaty provisions (i.e., to apply the 15% rate rather than a higher domestic rate, or to claim the foreign tax credit), the Greek resident shareholders must: Obtain a Certificate of Residency from the competent Greek authorities proving that they are fully liable to tax in Greece on their worldwide income. Provide the original certificate along with a notarized or Turkish Consulate-certified Turkish translation to: The withholding agent (the taxpayer – if withholding tax is applied), or The relevant tax office. If the Certificate of Residency cannot be provided: Domestic law provisions (still 15% in this case, as domestic and treaty rates are the same) will apply. Summary Table Question Answer Are dividends covered by the DTT? Yes (Article 10) Does Greece have the right to tax? Yes (Article 10(1)) Does Türkiye have the right to tax? Yes (Article 10(2) – as source State) Maximum Turkish withholding tax rate 15% (Article 10(2)) Domestic withholding tax rate 15% (same as treaty rate) Applicable withholding tax rate in Türkiye 15% Which return to file? Withholding tax return (muhtasar beyanname) When to file? At the time of payment/accrual (per Article 31) Is a foreign tax credit available? Yes (Article 22 – in Greece) Exception (PE/fixed base in Türkiye) Dividends taxed under Article 7 or 14 (higher rates may apply) Important Notes The 15% rate applies both under domestic law and the treaty. If the Greek shareholders have a permanent establishment or fixed base in Türkiye to which the dividends are effectively connected, the 15% limit does not apply, and the dividends are taxed as business profits or professional service income. The taxpayer must file a withholding tax return (muhtasar beyanname) to declare and pay the withheld 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. 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