Details of the income tax treaty and protocol between Finland and Turkey, signed on 6 October 2009, have become available. The treaty was concluded in the Finnish, Turkish and English languages, each text having equal authenticity. In the case of divergence, however, the English text prevails. The treaty generally follows the OECD Model Convention.
The maximum rates of withholding tax are:
|-||15% on dividends in general and 5% if the recipient company owns directly at least 25% of the capital of the company paying the dividends (Art. 10(2)(a) and (b)). In the case of Turkey, the term dividends also includes income from an investment fund or investment trust (Art. 2 Protocol);|
|-||15% on interest; 10% on interest derived by a bank; and 5% in respect of a loan or credit made, guaranteed or insured for the purpose of promoting export by the Finnish Export Credit or the FINNVERA or similar Turkish public entities, subject to exceptions for interest paid to the government of the other state or the central bank of that other state (Art. 11(2) and (3)); and|
|-||10% on royalties (Art. 12(2)). The definition of royalties includes payments for recordings for radio and television broadcasting and payments for the use or the right to use industrial, commercial or scientific equipment (Art. 12(3)).|
The treaty permits both states to levy a branch profit tax at a maximum of (Art. 10(4)):
|-||5% if the profits are exempt from tax in the residence state of the company; and|
|-||15% in all other cases.|
Deviations from the OECD Model Convention 2008 include:
|-||a building site, construction, assembly or installation project or supervisory activities in connection therewith constitute a permanent establishment only if such site, project or activities continue for a period of more than 6 months (Art. 5(3));|
|-||an enterprise is deemed to have a PE where a person other than an independent agent who acts in one of the states for an enterprise of the other state and who has no authority to conclude contracts in the name of the enterprise but who habitually maintains a stock of goods or merchandise in the first state from which he regularly delivers goods or merchandise on behalf of enterprise (Art. 5(5)(b));|
|-||the treaty contains a provision regarding independent personal services based on Art. 14 of the UN Model Convention. Art. 14(2) provides that income from independent services derived by an enterprise is taxed in accordance with Art. 7 (Business profits); and|
|-||pensions paid by, or out of funds created by a contracting state, a statutory body or local authority to an individual in respect of services rendered to that state body or authority are only taxable in the source state (Art. 18). However, those pensions and other payments are only taxable in the residence state if the receiving individual is a national of that state (Art. 18).|
Both states apply both the credit method and the exemption-with-progression method for the avoidance of double taxation (Art. 22 (1)a) and (b)) and 22(2)(a) and (c)). Dividends paid by a company resident in Turkey to a company resident in Finland which owns at least 10% of the voting power of the company paying the dividends will exempt in Finland (Art. 22(2)(b)).
The treaty contains a tax sparing credit under which the withholding tax on dividends, interest and royalties is deemed to be levied at the normal treaty rates if Turkey does not levy tax due to special incentive measures for the promotion of economic development.
Neither contracting states can terminate the treaty within the first 5 years after it becomes effective (Art. 29).