The Law on Digital Services Tax and Amending Various Laws and the Statutory Decree numbered 375 ("Law") has been published in the Official Gazette dated December 7, 2019 and numbered 30971.
The Law has entered into force upon its publication on the Official Gazette, except for the first seven articles of the Law that introduces the Digital Services Tax ("DST"). First seven articles will enter into force at the beginning of the third month as of the publication of the Law on the Official Gazette.
Upon its acceptance at the General Assembly on November 21, the Law was expected to be published on the Official Gazette after its approval by President Erdogan. However, an announcement was made by the Presidency on December 2, declaring that the Law was sent back to the General Assembly, as President Erdogan demanded review of the Article 50 of the Law on the postponement of the installation of filters to the thermal power plants.
Despite having the authority to review the Law in its entirety, General Assembly merely removed Article 50 and accepted the Law again without any other amendments. Thereupon, the Law was swiftly approved by the President and enacted.
The brief of its provisions corresponding to the DST and its application are as follows:
- Digital Service Tax and its Taxpayer
- Digital services tax rate is 7.5% and is applied to digital service providers, regardless of whether they are fully liable or limited taxpayers or whether the taxpayer performs activities through a workplace in Turkey or its permanent representatives. Moreover, the President is authorized to reduce this rate to 1% and to increase this rate up to three times either separately or jointly in terms of service types.
- Furthermore, in cases where the taxpayer does not have a residence, workplace, registered place of business in Turkey and in other cases where it is deemed necessary, the Ministry of Treasury and Finance may hold parties to the taxable transactions and the intermediaries of the transaction and payment responsible for the payment of the tax, in order to secure the tax receivable.
- Exemption: With respect to digital services within the scope of the Proposal, those generating a revenue that is less than 20 million Turkish Liras from Turkey and 750 million Euros or equivalent amount in Turkish Lira from across the world, in the previous accounting period of the relevant accounting period, are exempted from digital service tax. If the taxpayer is a member of a consolidated group in terms of financial accounting*, the total revenue the group generated from services subject to this tax shall be considered.
- Exceptions: The revenue generated from the following services provided in the digital environment are within the scope of exceptions to the digital service tax and the revenue generated from these services are not taken into consideration in determining the thresholds:
a) Services over which the Treasury share is paid,
b) Services over which special communication tax is collected,
c) Certain services provided within the scope of Banking Law, such as transactions related to payments and collections, issuance of credit cards, etc.,
d) Sales of goods produced in R&D centers as a consequence of R&D activities and services provided exclusively through these goods,
e) Payment services within the scope of the Law on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions.
- Right of Deduction: The digital service tax paid by the digital service taxpayers can be reduced by these taxpayers as an expense for the determination of the actual net income based on the income and corporate tax.
- Services within the scope of Digital Service Tax:
The revenue generated from the provision of the following services offered in Turkey* is subject to digital services tax:
- All kinds of advertising services provided on digital medium (including advertising control and performance measurement services, services such as transmission and management of user's data and technical services for ad serving),
- Digital sale of any audio, visual or digital content (including computer programs, applications, music, video, games, in-game applications, etc.) and digital services that aim for the listening, watching, playing or recording of these contents to electronic devices or the usage of these contents on these devices,
- Services to provide and operate digital environments where users can interact with each other (including services that enable sale of goods or services among users or facilitate these sales).
Importantly, intermediary services provided on the digital environment for the services mentioned above are also subject to digital service tax.
*"Provision of service in Turkey" has the following meaning in the Law: Provision of service in Turkey, benefiting from the service in Turkey, providing the service for people in Turkey or valuation the service in Turkey (Valuation means that payment for the service is made in Turkey or if the payment is made outside Turkey, the payment is transferred to the accounts of the person who made the payment or the person on behalf of whom the payment is made for or the payment is separated from the profit of that person who made the payment. Moreover, in the event the digital advertising services are provided for people who are not present in Turkey, the service shall not be considered to be valuated in Turkey.)
- Other Significant Provisions
- Obligation to Certify and Notify: The Ministry of Treasury and Finance is authorized to impose the obligation of notification and certification for the determination and application of the exemption and to determine the principles and procedures regarding the implementation.
In this context, those who do not fulfill their notification and certification obligations, despite being given an additional 30 days to do so, cannot benefit from the exemption mentioned above.
- No Deduction: Digital service tax is calculated by applying the 7.5% ratio to the tax base. No deduction shall be made from the tax calculated in this procedure.
- Tax Period: Taxation period of the digital service tax is one-month periods of the calendar year. Depending on the service type and the operating volume of the taxpayers, the Ministry of Treasury and Finance is authorized to determine a quarterly taxation period instead of a one-month taxation period.
- Tax Security: A notice can be made by the tax office that is authorized to levy digital transaction tax to the digital service providers or their authorized representatives who did not fulfill their obligations to submit a declaration and pay regarding taxes in due time. While doing so, the responsible tax office may use the notification methods such as electronic mail or all other means of communication via using information obtained from communication instruments that are in their website, domain name, IP address and similar sources for the fulfillment of these obligations, and this shall be announced on the website of the Revenue Administration. In case these obligations are not fulfilled within thirty days after the announcement, upon the decision of the Ministry of Treasury and Finance, a block access to the services provided by the digital service providers may be exercised until these obligations are fulfilled.
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.