There is no doubt that both citizens and companies have significant benefit from the digital economy. On the other hand, it is an evitable fact that it creates an open challenge for the tax authorities.
In this respect, taxation of the digital economy was the main agenda of the Organisation for Economic Cooperation and Development's ("OECD") base erosion and profit shifting ("BEPS") project. However, as the BEPS report under Action 1 avoid making any long term recommendation and delays it by 2020, many jurisdictions concentrate upon an interim solution in order to determine how to tax business with a substantial digital business but no physical presence.
In parallel with this tendency, a new legislation which proposes the taxation of digital services is offered in Turkey.
What it covers?
According to new legislation, the initial condition is that the services should be provided within Turkey. It means that regardless of the permanent establishment of the digital service provider, a digital service will be deemed as offered in Turkey if;
- the service targets people in Turkey, or
- people benefit from the service in Turkey,
- processing of the data obtained from the users in Turkey.
In this respect, the legislation covers the following digital services that are provided in Turkey:
- All kinds of digital advertising services,
- Sales (including listening, viewing, playing content on digital media) of any audio, visual or digital content in digital media,
- Digital environments where users can interact with each other.
Tax Rate and Exceptions
According to the new legislation, the rate for the taxation of digital services is determined as 7.5%. Besides, it is ensured that the tax base cannot be deducted by way of expense, cost and tax.
Finally, the legislation exempts the digital service providers whose revenue in Turkey is less than 20 million Turkish Lira or the world in general revenue is less than 750 million euros.
To sum up, Turkey is now also among the countries who seek an interim solution towards the taxation of the digital services. Although the OECD is determined to bring an effective solution to the base erosion on the digital economy, it seems Turkey aims to propose a more effective tool to impose a tax on digital services.
We will continue to bring all new developments regarding the taxation of digital services in Turkey for your attention.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.