Ruling Number: 79690095-125-33 Introduction In a private ruling dated November 23, 2015, the Aydın Tax Office (Tax and Treaties Application Directorate) addressed the withholding tax rate applicable for the use of a trademark belonging to an Irish resident company. The taxpayer stated that they use a trademark owned by an Irish resident company (which has a Certificate of Residency issued by the Irish authorities) for their hotel recorded in their assets. The taxpayer requested clarification on the withholding tax rate to be applied under the Corporate Tax Law. 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(c)): Withholding tax applies to real estate capital income (rental income) paid or accrued to limited liability corporations. Council of Ministers Decree No. 2009/14593 – Withholding Tax Rates on Real Estate Capital Income: Type of Lease Withholding Tax Rate Leasing activities under Financial Leasing Law No. 3226 1% All other rental income 20% Double Taxation Treaty Provisions Türkiye-Ireland Double Taxation Treaty (Effective January 1, 2011) 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 if the beneficial owner is a resident of the other State, the tax charged shall not exceed 10% of the gross amount of the royalties. 3. The term “royalties” includes payments of any kind for the use of, or the right to use: Any copyright of literary, artistic, or scientific work (including cinema films and radio or television recordings), Any patent, trademark, design, plan, secret formula, or manufacturing process, Industrial, commercial, or scientific know-how, Industrial, commercial, or scientific equipment. The term “royalties” also includes income from the alienation of any similar right or asset related to productivity, use, or disposal. Article 23 – Elimination of Double Taxation (Paragraph 1(a)): Taxes paid in Türkiye on royalties may be credited against Irish tax on the same income. Ruling Conclusion Step 1 – Domestic Law Characterization Under Article 30(1)(c) of the Corporate Tax Law, payments for the use of a trademark could be characterized as real estate capital income (rental of intangible rights), with a domestic withholding tax rate of 20%. Step 2 – Treaty Characterization – Royalties Under Article 12(3) of the Türkiye-Ireland DTT, payments for the use of a trademark (alameti farika) are expressly included in the definition of royalties. Step 3 – Treaty Rate Under Article 12(2) of the DTT, since the beneficial owner of the royalties is a resident of Ireland, the withholding tax in Türkiye shall not exceed 10% of the gross amount of the royalties. Step 4 – Applicable Rate Characterization Domestic Rate Treaty Rate Applicable Withholding Tax Rate Royalties (trademark use) 20% 10% (maximum) 10% Conclusion: The payments made by the taxpayer to the Irish resident company for the use of its trademark are subject to withholding tax at 10% under the Türkiye-Ireland DTT. Foreign Tax Credit Under Article 23(1)(a) of the DTT, taxes paid in Türkiye on these royalty payments may be credited against Irish tax on the same income. Required Documentation for Treaty Benefits To benefit from the reduced treaty rate (10% instead of 20%), the Irish resident company must: Obtain a Certificate of Residency from the competent Irish authorities proving that it is fully liable to tax in Ireland 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 Question Answer What is the nature of the payment? Royalty (trademark use fee) Domestic withholding tax rate 20% (real estate capital income) Treaty characterization Royalties (Article 12(3)) Treaty maximum rate (Article 12(2)) 10% Applicable withholding tax rate in Türkiye 10% Required document Certificate of Residency from Irish authorities Foreign tax credit available? Yes (Article 23 – in Ireland) Important Notes This ruling specifically applies to trademark usage fees (marka kullanım bedeli). The 10% rate is the maximum treaty rate; if domestic law provides a lower rate, the lower rate would apply. The taxpayer must withhold the tax at the time of payment and declare it to the tax office. 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.