January 15, 2020 Turkey's 7.5% Digital Services Tax to be effective 1 March 2020 Executive summary On 5 December 2019, the Turkish Parliament enacted Law no.7194 which provides for a Digital Services Tax (DST). This law was published in the Official Gazette on 7 December 2019 and the DST will enter into force as of 1 March 2020. The DST is levied at a rate of 7.5% on in-scope revenues generated in Turkey by the provision of certain digital services. It applies only to companies with global, in-scope revenues of at least €750 million and generating revenues of at least 20 million Turkish Lira (approximately $3.3 million) in Turkey from in-scope services. The DST shares some similarities with the draft EU DST Directive,1 including a dual approach to the thresholds that must be met for a company to be within the scope of DST. There are, however, significant differences, including a broader scope and higher tax rate. Detailed discussion Broad scope of the Turkish legislation The scope of the Turkish DST is very broad, and includes the following revenues generated from the following categories of services in Turkey:
Key concepts While there remain some uncertainties in respect of the final law, the legislation as published clarifies a number of key concepts:
Revenue thresholds Digital service providers that generate at least €750 million of in-scope revenue on a global basis and at least 20 million Turkish lira of in-scope revenue in Turkey are subject to the DST. Both conditions must be met for the company to be in-scope of the tax. If a digital service provider meets both thresholds, it will become liable for the DST as of the 4th month following the month in which the threshold is met. The law authorizes the President of Turkey to reduce the revenue thresholds to as little as zero or to increase them to up to triple the specified levels. Out-of-scope services The following services are out of scope of the Turkish DST:
Tax base, rate, calculation and payment The base of the DST is the gross revenue generated during a taxation period. If the revenue is denominated in a foreign currency, it must be converted to Turkish lira. No deduction can be made from the tax base. The DST is levied at a rate of 7.5%. The President of Turkey may reduce the rate to 1% or increase it to 15%, either per type of digital service separately, or for all types of digital services together. Tax compliance and penalties Taxpayers and those responsible for tax declarations must submit a Digital Services Tax return to the relevant tax office by the end of the month following the taxation period and pay the tax within the taxation period. In case of non-compliance, there will be a tax loss penalty in addition to the DST that is equal to the amount of DST. In other words, the tax loss penalty is applied at a rate of 100% of the DST in accordance with the Turkish Tax Procedure Law. Additionally, there will be a 1.6% late interest payment per month. In addition to monetary penalties, in case of failure of the digital service providers or their Turkish representatives to submit the tax return and to make a timely payment, access to the digital services provided by such digital service providers may be blocked until these obligations are fulfilled. Implications Companies whose global and local revenue thresholds are below €750 million globally or 20 million Turkish lira locally will not be impacted by the DST. For companies within the scope of the DST, the impact is likely to be significant, as the tax payable is calculated on revenue, not profit. Turkey also levies a 15% withholding tax (WHT) on digital advertising payments to services providers and intermediaries, which was published in the Official Gazette on 19 December 2018.2 With an overlapping scope between the WHT and the DST, companies may be subject to double taxation on revenues generated by digital advertising services. ——————————————— 1 See EY Global Tax Alert, ECOFIN agrees to extend discussions on Digital Services Tax, taking into account a new proposal from France and Germany, dated 4 December 2018. 2 Presidential decree No. 476. ——————————————— For additional information with respect to this Alert, please contact the following: Kuzey Yeminli Mali Müsavirlik ve Bagimsiz Denetim A.S. Istanbul
Ernst & Young LLP, Eastern European Business Group, New York
——————————————— PDF version of this Tax Alert
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