Ruling Number: 49327596-125[KVK.ÖZ.2015.32]-150 Introduction In a private ruling dated May 17, 2016, the Antalya Tax Office (Taxpayer Services Income Group Directorate) addressed whether withholding tax applies to payments made for professional services (quality control, audit, consultancy, training, etc.) received from German resident companies, and specifically how to calculate the 183-day (6-month) period for determining whether a permanent establishment is created in Türkiye. The taxpayer stated that their company receives various professional services (quality control, audit, consultancy, training, etc.) from German resident companies. When such services are performed as part of a project, part of the project may be carried out in Türkiye and part in Germany. The taxpayer requested clarification on how to calculate the 6-month period under Article 5(3)(b) of the Türkiye-Germany DTT for determining whether a permanent establishment is created. Specifically, the taxpayer asked whether the calculation should be based on: The total aggregate stay days of all personnel sent to Türkiye by the German company (person × days), or The duration of the project (start date to end date in Türkiye), regardless of the number of personnel. 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: Withholding tax applies to professional service income. Council of Ministers Decree No. 2009/14593: Type of Professional Service Income Withholding Tax Rate Petroleum exploration 5% Other professional service income 20% Double Taxation Treaty Provisions Türkiye-Germany Double Taxation Treaty (Effective January 1, 2011 – entered into force August 1, 2012) Article 5 – Permanent Establishment (Paragraph 3(b)): The term “permanent establishment” also includes: (b) The provision of services (including consultancy services) by an enterprise of one Contracting State through employees or other personnel engaged for such purpose, where such activities continue for a period or periods aggregating more than six months (183 days) in any 12-month period with respect to the same or connected project. Article 7 – Business Profits (Paragraph 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. Ruling Conclusion – Calculation of the 183-Day Period The ruling provides clear guidance on how to calculate the 183-day (6-month) period for PE determination: Scenario Calculation Method Same or connected projects (services provided under the same or connected projects in Türkiye) The duration is calculated as a whole (aggregate period from first project start to last project end) Separate projects (services provided under separate, unrelated projects) Each project’s duration is calculated separately Multiple personnel sent for the same project The stay periods of all personnel sent to Türkiye by the enterprise for the same project are aggregated (total person-days) Key Principle: For a single project, if the German company sends multiple personnel to Türkiye, the calculation is based on the total aggregate stay of all personnel (person × days), not the individual stay of each person, and not merely the project start-to-end date. Example: If a German company sends 3 personnel for 40 days each for the same project, the total is 120 days (not 40 days). If the total aggregate exceeds 183 days, a PE is created. Tax Treatment Summary Scenario Taxing Right Withholding Tax in Türkiye? Services performed entirely in Germany (no personnel in Türkiye) Only Germany No Services performed in Türkiye for ≤183 days (aggregate of all personnel) Only Germany No (but withholding agent may not know duration at time of payment) Services performed in Türkiye for >183 days (aggregate of all personnel for same/connected project) Türkiye (on PE-attributable profits) Yes (20% domestic rate, or as applicable) Practical Implementation for Withholding Agents At the time of payment, the withholding agent (the Turkish taxpayer) may not know the total duration of services or the aggregate stay of all personnel. Therefore: If it is certain that the services will be performed entirely in Germany (no personnel in Türkiye) → No withholding tax. If the services involve any personnel presence in Türkiye, the withholding agent may need to withhold tax at the time of payment (20%) unless the German company provides documentation that the stay will not exceed 183 days aggregate. If withholding tax is applied but it is later determined that the stay was ≤183 days (no PE created), the German company may claim a refund from the Turkish tax office. Required Documentation for Treaty Benefits To benefit from the treaty provisions (exemption from Turkish withholding tax), the German resident company must: Obtain a Certificate of Residency from the competent German authorities proving that it is fully liable to tax in Germany on its 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. If the Certificate of Residency cannot be provided: Domestic law provisions (20% withholding tax) will apply instead of the treaty provisions. Summary Table – 183-Day Calculation Methods Project Type Personnel Involvement Calculation Method Same or connected project Multiple personnel Aggregate total of all personnel stay days (person × days) Same or connected project Single person Individual stay days Separate projects (unrelated) Any Each project calculated separately Example Calculation: Scenario Personnel Days per Person Total Aggregate PE Created? Project A 2 persons 100 days each 200 days Yes (>183) Project A 3 persons 40 days each 120 days No (≤183) Project A 1 person 200 days 200 days Yes (>183) Project A (separate from Project B) 2 persons (Project A) 100 days each (Project A) 200 days (Project A only) Yes 2 persons (Project B) 50 days each (Project B) 100 days (Project B only) No (separate project) Important Notes The ruling confirms that for the same or connected project, the stay days of all personnel are aggregated to determine whether the 183-day threshold is exceeded. If separate, unrelated projects are involved, each project is evaluated independently. The characterization of services as “professional services” under domestic law does not override the treaty; under the DTT, these services are treated as “business profits” under Article 7, and the PE rules of Article 5 apply. 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.