The Presidential Decree No. 476, published in the Official Gazette of 19.12.2018, has imposed 15% withholding tax on internet advertising. The government has withheld 15% tax on digital advertising payments to services providers and intermediaries. The Presidential Decree is applicable to payments made as of 1 January 2019.

With the development of technology, it is inevitable that people and entities having commercial activities, benefit from various advertising channels in order to be more recognized in their businesses. Digital advertising has become more popular compared to traditional advertising channels such as newspapers, television, billboards. One of the most important offering of digital advertising is that it enables its users to reach any place where the internet is accessible. Additionally, unlike other mass advertising channels, digital advertising enables entities to target who they want to advertise based on target's sex, age, geographic area etc. Targeted advertising is much more cost effective and efficient way of advertising for its users. By freeing its users from limitations of physical world and expensive offerings of mass marketing, digital advertising has preferred more and more by entities.

With the intensifying focus on digital advertising, it has become a necessity to take the control of digital advertising from various perspectives and rules, regulations and guidance have been promulgated in many countries.

Turkey with the effectiveness of the Law No: 6745 (Omnibus Bill) which has been published in the Official Gazette of 07.09.2019 has amended article 11 of the Tax Procedures Law, has authorized Council of Ministers to withhold tax for taxpayers or intermediaries of taxable transactions and to determine different tax rates regardless of whether or not the subject of payment is the purchase or sale of goods; whether or not the payers are taxpayers, or the transaction is carried out electronically or not which was the signal of the upcoming Presidential Decree No.476.

On 19.12.2018, Turkey issued Presidential Decree No.476 ('Presidential Decree'). The government has made certain regulations on digital advertising and has re-regulated tax deduction on internet advertising services payments to service providers or intermediaries and imposed 15% tax on internet advertising service providers or intermediaries, under the Tax Procedure Law, Income Tax Law and Corporate Tax Law.

It is expected that the fair competition will be promoted in the digital advertising industry which has high added value together with the employment capacity. President Dr. Mahmut Kurşun of IAB Turkey- The Interactive Advertising Bureau (The only professional organization where the advertising agencies, media are represented under the same roof) has noted that before the regulation, non-taxpayers have had an unfair competitive advantage against taxpayers. He added that competition conditions will be better after the regulation.1

Since the search engine and social media companies have the right to be taxpayers in anywhere, they choose to be taxpayers in low-tax countries. Therefore, significant difficulties could be experienced in taxation of incomes of these companies and the tax loss of the state could not be prevented. This problem is not only for Turkey, many countries have begun to find the solutions to solve the similar problems, to prevent the unfair competition, tax loss and design taxation systems for digital advertising. The current relevant provisions of international tax treaties fail to adequately grasp the economic and commercial activities carried out electronically and establish the fair taxation rules. Therefore, BEPS ("Base Erosion and Profit Shifting") Action of Plans under OECD have emerged.2 It is also seen the reflections of the BEPS Action Plan Report in the New Tax Procedure Law of Turkey.

In this context, the purpose of the Presidential Decree is to accelerate the transition to the formal economy and to ensure tax security. According to the Presidential Decree, full or limited taxpayers who mediate or provide advertising services on the internet and the limited taxpayers corporations, regardless of whether or not they are taxpayers, will be subject to withholding tax. In this way, the traditional tax law structure has been amended to include the virtual market for products and services offered for sale over the internet.

The withholding tax payments to be made within the scope of the Presidential Decree will be paid to the government by the person who will pay by the withholding tax return with the information related to the payment. The withholding tax rates are as follows:

  • For limited taxpayers (companies established abroad, persons living abroad) 15%,
  • For natural persons (whether or not they are taxpayers) 15%,
  • For full taxpayers (capital companies established in Turkey) 0%.

If a payment is made to the companies established in Turkey (Co., LTD.) in this context, as the withholding tax rate is 0%, there will be no additional tax. These companies will only be liable for Value Added Tax (VAT) invoices.

Another issue is that the payments to be made to the person or the individual business. 15% withholding tax will be withheld by these individuals, and if they cannot issue an invoice for payment, they will issue an expense statement and a withholding tax will be indicated on this expense statement.

How will the Presidential Decree affect the current internet ad values?

According to the 2017 Media and Advertising Investments Report of Advertising Association, digital media is ranked second in total media and advertising investments with a share of 25.9%.3 In the Digital Advertising Investment Report, announced by IAB Turkey for the first half of 2018, display advertising investments grew by 14 percent in the first 6 months of 2018 and reached ₺704 million. Display or click-based advertising investments achieved the biggest share in the display ads category with ₺500 million. The size of the search engine advertising investments, including the paid sort investments, reached ₺444 million, while the ad pages advertising investments rose to ₺55 million.4

When the Presidential Decree and the advertising data are analyzed together, it is estimated that digital advertising and investment rates in the search engine advertising may be reduced by adding tax liability over the advertising prices. Since the advertising costs demanded by major search engine companies such as Google and social media companies (Facebook, Instagram, Twitter) are taxable due to this Presidential Decree, it can be an increase in these costs. In this case, it is thought that it will be more expensive for advertisers (especially for medium and small-scale enterprises) to advertise on the internet.

Effect of the Presidential Decree on Start-Ups

Considering the importance of digital marketing, medium and small enterprises allocate budget to internet advertising as well as global advertisers. However, with the Presidential Decree, an increase of the internet advertising expenses and an additional tax payment may have negative effects especially on small start-ups. In this respect, President Rahmi Aktepe of Informatics Association of Turkey (TBD) states that small scale companies and start-ups should be supported in the market with an internet advertising tax deduction or exemption, since these companies serve to development of Turkey's technological capacity.5

In conclusion, this Presidential Decree can be considered as a positive development for the prevention of unfair competition and tax loss of the state. However, if the small-scale companies and start-ups will not to be supported with the exemptions or tax deductions in digital advertising, this Presidential Decree can have a negative effect on these small-scale entities.



[2], (17.01.2019).

[3], (17.01.2019).

[4], (17.01.2019).

[5], (17.01.2019).

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