On 6 December 2007, the decree of the Council of Ministers on transfer pricing has been adopted (Official Gazette of 6 December 2007, No. 26722). The decree, which applies to both resident and non-resident individuals and corporations, clarifies the arm's length principle, transfer pricing methods, advance pricing agreements and transfer pricing documentation. The decree shall be retroactively applied from 1 January 2007.

Procedural rules on transfer pricing published

On 18 November 2007, the Ministry of Finance published Announcement No. 1 on transfer pricing, effective as of 1 January 2008. For the first time, transfer pricing regulations were introduced by the new Corporate Income Tax Act and by amendments to the Income Tax Act - both effective from 1 January 2007 (Official Gazette of 18 November 2007, No. 26704). The draft decree of the Council of Ministers on transfer pricing issued on the website of the Ministry of Finance on 1 June 2007 has not been adopted.

The Announcement, which applies to both resident and non-resident individuals and corporations, clarifies in detail the arm's length principle, transfer pricing methods, advance pricing agreements and transfer pricing documentation.

The basic principles clarified in the previous draft decree on the guidance of the transfer pricing have not been altered, however, the Announcement includes comprehensive and detailed explanations on the arm's length principle and the transfer pricing methods, and the applications thereof.

The procedural rules for APAs are clarified. Corporate taxpayers registered with the tax office responsible for large-scale taxpayers in Istanbul may enter into an APA with the tax administration for their foreign transactions. From 1 January 2009, all other corporate taxpayers will also be eligible to apply for an APA. Individual income taxpayers cannot benefit from the APA procedure. Bilateral and multilateral APAs are possible.

For the renewal of an APA, a taxpayer must apply 9 months prior the end of the current APA period. The revision of an existing APA is also possible, if one or more of the following conditions are met:

-		one of the critical assumptions included in the APA is not realized;
-		a material change of the conditions of the APA has occurred or the conditions determined in the APA are no longer valid;
-		legislation, including tax treaties, is amended thereby affecting the APA; and
-		bilateral or multilateral APAs are revised, repealed or cancelled by the competent authorities of other countries.

If the taxpayer does not comply with the conditions of an APA, and/or the information and documents provided by the taxpayer have proven to be false or incomplete, the tax administration may unilaterally cancel the APA with retroactive effect. In such cases, tax audits are initiated with respect to the taxpayer. Additionally, if annual APA reports are not submitted in due time, the tax administration may cancel the APA, with effect as of the beginning of tax period.

The Announcement also includes the documentation obligations on transfer pricing transactions. Taxpayers are obliged to keep and submit upon request of the tax administration the transfer pricing documentation. Reports on the transactions effected by the related persons must be prepared annually. The taxpayers must submit such reports to the tax administration upon request. A summarized information report on transfer pricing, thin capitalization and controlled foreign companies must be submitted to the tax office together with the annual corporate income tax return.