Ruling Number: 62030549-120[65-2015/145]-13353 Introduction In a private ruling dated February 17, 2016, the Istanbul Tax Office (Taxpayer Services Income Taxes Group Directorate) addressed the withholding tax rate applicable to payments made to a UK company for a concert given by a UK resident vocal artist in Türkiye. The taxpayer stated that a French national vocal artist, resident in the United Kingdom and employed by a UK company, gave a concert in Türkiye as part of an activity organized by the taxpayer’s economic enterprise. The payment was made to the UK company. The taxpayer requested clarification on the withholding tax rate to be applied under the double taxation treaty. 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 3(3)(a) – Income Subject to Limited Liability: Commercial income derived by foreign corporations having a place of business or permanent representative in Türkiye in accordance with Tax Procedure Law No. 213. Article 3(3)(c) – Income Subject to Limited Liability: Professional service income derived in Türkiye. Article 3(4): The determination of whether income is derived in Türkiye and whether a permanent representative exists follows 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 separated from profits. Corporate Tax Law – Article 30 – Withholding Tax: Withholding tax applies to payments made for professional service income. Council of Ministers Decree No. 2009/14593 – Withholding Tax Rates: Type of Professional Service Income Rate Petroleum exploration 5% Other professional service income 20% Double Taxation Treaty Provisions Türkiye-UK Double Taxation Treaty (Effective January 1, 1989) Article 17 – Artistes and Sportsmen: 1. Notwithstanding the provisions of Articles 14 (Independent Personal Services) and 15 (Dependent Personal Services), income derived by a resident of one Contracting State as an entertainer (such as a theatre, 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 entertainer or sportsman accrues not to the entertainer or sportsman themselves but to another person, that income may, notwithstanding the provisions of Articles 7 (Business Profits), 14, and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsman are exercised. 3. Notwithstanding paragraphs 1 and 2, income derived from activities exercised in one Contracting State by a resident of the other Contracting State shall be exempt from tax in the first-mentioned State if the visit is supported wholly or substantially from the public funds of the other State and, in the case of Türkiye, additionally if the visit is met by associations or organizations beneficial to the public interest. Article 23 – Elimination of Double Taxation: Provides for a foreign tax credit mechanism. Ruling Conclusion Step 1 – Characterization of the Payment Factor Determination Nature of activity Vocal artist concert (musician/entertainer) Where was the activity exercised? Türkiye Who received the payment? The UK company (employer/manager of the artist) Step 2 – Application of Article 17(2) Under Article 17(2) of the Türkiye-UK DTT, even if the income accrues to the artist’s employer/company (rather than directly to the artist), Türkiye still has the right to tax the income derived from the artist’s personal activities exercised in Türkiye. This overrides Articles 7 (Business Profits), 14, and 15. Step 3 – Taxing Right State Taxing Right Türkiye (where the activity is exercised) Yes (Article 17(2)) United Kingdom (residence of the artist and company) Yes, but subject to foreign tax credit Step 4 – Withholding Tax Rate The DTT does not provide a reduced rate for artiste and sportsmen income under Article 17. Therefore, the domestic withholding tax rate applies. Rate Type Percentage Domestic withholding tax rate (professional service income) 20% Treaty reduced rate (none specifically for Article 17) N/A Conclusion: The taxpayer must withhold tax at 20% on the payments made to the UK company for the concert. Foreign Tax Credit Under Article 23 of the DTT, taxes paid in Türkiye may be credited against UK tax on the same income. Summary Table Question Answer What is the nature of the activity? Artiste (vocal artist – musician) – concert Where was the activity exercised? Türkiye Who receives the payment? UK company (employer/manager of the artist) Applicable treaty article Article 17(2) – Artistes and Sportsmen Does Türkiye have the right to tax? Yes Does the treaty provide a reduced rate? No (no specific rate for Article 17) Applicable withholding tax rate 20% (domestic rate for professional service income) Foreign tax credit available? Yes (Article 23 – in the UK) Important Notes Article 17 overrides the business profits (Article 7) and dependent/independent personal services (Articles 14 and 15) provisions. Even though the payment is made to the UK company (not directly to the artist), Türkiye still has the right to tax because the income arises from the artist’s personal activities exercised in Türkiye. The 20% rate is the standard domestic withholding tax rate for professional service income. 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.