Since a Law introduced in September 2016, the chance of new WT obligations for e-business related transactions was open in Turkey. Now, effective from January 1st, 2019, revenues from online advertising services provided by non-residents are subject to 15% withholding tax in Turkey.
The payer for these services is required to deduct 15% tax from the
payment to the service provider or to the party acting as intermediary to the
The new WT applies when the services are provided by non-residents but there were changes also in the Corporate Tax regulations leaving clear that no WT is to be collected if the digital advertising service provider is a Turkish resident company. No deductions from the tax base are entitled.
What if there is a treaty?
As Treaty obligations prevail over Turkish local regulations, and most of the treaties currently signed by Turkey would normally consider Advertising as a service falling in article 7 and therefore not subject to withholding tax, it is to be assessed what the impact of this new rule will be in those cases.
If treaty partners are excluded, then the collection capacity of the measure decreases significantly.
But having clarity on this will help foreign companies based in treaty countries to get certainty in these business relationships with Turkey.
The path selected by Turkey is different than that of the countries pursuing a non-treaty based digital advertising services taxation on a temporary basis. This could be seen as a first step in a more fundamental regulatory process that will influence their treaty negotiations.
Let’s remember that since 2016 Turkey has also an internal regulation draft also pendent to be passed stipulating that “The Ministry of Finance would be authorized to determine the scope of an electronic PE…”.
The definition given in that draft was referring to “The assignment or the use of the internet, an extranet, intranet or a similar telecommunications environment or tool for commercial, industrial or professional activities would result in the creation of an “electronic PE”;
Being that definition only 2 years old, we could consider it somehow “out of fit” in the current supra-national discussion centered around user data, data gathering, and factual digital business contracts/transactions.
But the intention and the direction of this G20 local tax regulator is clear.