Ruling Number: 62030549-125[30-2012/75]-217 Introduction In a private ruling dated February 18, 2013, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed whether withholding tax applies to payments made to a Dutch resident company for: Theatrical performances to be held in Türkiye (11 days), Management/intermediary services received from abroad (for arranging the shows in Türkiye), and Rental of technical equipment (sound system, lighting system, truss system, stage roof, and podium). The taxpayer stated that they are engaged in venue arrangement and organization services. A Dutch resident company’s theater artists will perform in Türkiye for 11 days. Legal Framework Corporate Tax Law (Law No. 5520) Article 3 – Full and Limited Liability: Limited liability: Corporations whose legal and business centers are both not located in Türkiye are taxed only on their income derived from Türkiye. Paragraph 3(a): Commercial income derived by foreign corporations having a place of business or permanent representative in Türkiye (in accordance with the Tax Procedure Law No. 213) constitutes corporate income subject to limited liability taxation. Paragraph 3(c): Professional service income derived in Türkiye constitutes corporate income subject to limited liability taxation. Paragraph 4: The determination of whether income is derived in Türkiye and whether a permanent representative exists shall follow the relevant provisions of the Income Tax Law No. 193. Income Tax Law (Law No. 193) Article 7(4): For limited liability persons, professional service income is deemed derived in Türkiye if the professional services are performed or utilized in Türkiye. Article 7 (final paragraph): “Utilization” means the payment being made in Türkiye, or if the payment is made abroad, it being credited to the accounts of the payer or the person on whose behalf the payment is made in Türkiye, or being separated from profits. Corporate Tax Law (Article 30) – Withholding Tax: Withholding tax applies to: Professional service income derived in Türkiye by limited liability corporations, Payments made for the sale, transfer, or assignment of copyrights, patents, trademarks, trade names, and other intangible rights (regardless of whether they are included in commercial or agricultural income). Important: Payments made within the scope of commercial activities are not listed among income subject to withholding tax. Double Taxation Treaty Provisions Türkiye-Netherlands Double Taxation Treaty (Effective January 1, 1989) Article 7 – Business Profits: 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 the enterprise carries on business as aforesaid, the profits may be taxed in the other State but only so much of them as is attributable to that permanent establishment. Article 12 – Royalties: 1. Royalties 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 royalties may also be taxed in the State in which they arise, according to its domestic laws. But the tax so charged shall not exceed 10% of the gross amount of the royalties. 4. The term “royalties” includes payments for the use of, or the right to use, any copyright, patent, trademark, design, plan, secret formula, know-how, as well as for the use of, or the right to use, industrial, commercial, or scientific equipment. Article 17 – Artistes and Sportsmen: 1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of one Contracting State as a theatrical, motion picture, radio or television artiste, or a musician, or as a sportsman, from their personal activities as such exercised in the other Contracting State, may be taxed in that other State. 2. Where income in respect of personal activities exercised by an artiste or sportsman in their capacity as such accrues not to the artiste or sportsman themselves but to another person, that income may, notwithstanding the provisions of Articles 7, 14, and 15, be taxed in the Contracting State in which the activities of the artiste or sportsman are exercised. Article 23 – Elimination of Double Taxation: Taxes paid in Türkiye under Articles 12 and 17 may be credited against Dutch tax on the same income. Ruling Conclusion The ruling addresses three types of payments separately: No. Type of Payment Characterization Withholding Tax Required Rate 1 Management/intermediary services (show arrangement from abroad) Commercial income (Article 7) No – 2 Technical equipment rental (sound, lighting, truss, stage roof, podium) Royalties (Article 12) Yes 10% 3 Theatrical performances (payments to artists or their company) Artistes and Sportsmen (Article 17) Yes 20% Detailed Analysis 1. Management/Intermediary Services (from abroad) These services fall within the scope of commercial income under Article 7 of the DTT. Payments made for commercial activities are not subject to withholding tax under Article 30 of the Corporate Tax Law. Conclusion: No withholding tax. 2. Technical Equipment Rental Rental of technical equipment (sound, lighting, truss, stage roof, podium) constitutes royalties under Article 12(4) of the DTT (use of industrial, commercial, or scientific equipment). Under Article 12(2), Türkiye has the right to tax such payments, but the rate shall not exceed 10% of the gross amount. Conclusion: 10% withholding tax. 3. Theatrical Performances (Artistes and Sportsmen) Under Article 17(1), income derived by artistes from their personal activities exercised in Türkiye may be taxed in Türkiye. Under Article 17(2), even if the income accrues to another person (e.g., the Dutch company rather than the artists directly), Türkiye still has the right to tax. Domestic withholding tax rate for such payments is 20% (under Article 30 of the Corporate Tax Law, as the treaty does not specify a reduced rate for Article 17 income). Conclusion: 20% withholding tax. Foreign Tax Credit Taxes paid in Türkiye under Articles 12 and 17 of the DTT may be credited against the Dutch tax liability on the same income under Article 23 (Elimination of Double Taxation). Required Documentation for Treaty Benefits To benefit from treaty provisions, Dutch residents must: Obtain a Certificate of Residency from the competent Dutch authorities proving that they are fully liable to tax in the Netherlands on their worldwide income. Provide the original certificate along with a notarized or Turkish Consulate-certified Turkish translation to the withholding agent (the taxpayer) or the relevant tax office. Summary Table Payment Type Domestic Characterization Treaty Article Treaty Rate Domestic Withholding Rate Final Withholding Required Management/intermediary services Commercial income Article 7 Not applicable (no withholding) 0% 0% Technical equipment rental Royalties Article 12 10% 20% 10% (treaty overrides) Theatrical performances Artiste income Article 17 No reduced rate specified 20% 20% 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.