Digital Service Tax Law ("DST Law"), which introduces a special tax for digital services, was published in the Official Gazette of December 7, 2019.

The DST Law imposes a new and specific tax on the revenues generated from the provision of digital services (such as advertisements, sales, intermediary activities, content usage and etc.), and also provides an access ban measure for digital service providers' failure to duly comply with the digital service tax requirements.

The DST Law will enter into force within three months as of its publication date (i.e., on March 1, 2020).

- Subject Matter of the Tax Obligation

The DST Law states that the revenue generated from the following activities and services provided in Turkey will be subject to digital service tax, and also defines what "providing services in Turkey" means for the purposes of this law:

  1. All digital advertisement services (including advertisement supervision and performance measurement services, data transmission and management services relating to users, including technical services for viewing advertisements),
  2. Sales of any audible, visual or digital content (including computer software, applications, audio, video, games, in-game applications and similar contents) and services provided on digital media for listening, watching and playing said content, or recording or using them in electronic devices,
  3. Services provided for creating and operating digital media in which users may interact with each other (including services which allow or facilitate selling products or services between users),
  4. Intermediary services provided on digital media, with regard to services listed in paragraph (i) above, are also subject to the digital service tax.

- Meaning of "Providing Services in Turkey"

According to the new legislation, providing services in Turkey is defined as follows: (i) the service is provided in Turkey, (ii) the service benefit is enjoyed in Turkey, (iii) the service targets individuals located in Turkey, and (iv) the service is used in Turkey (where "using" means that the service fee is paid in Turkey or, if the fee is paid abroad, it is transferred to the accounts of the payer in Turkey or to the accounts of the person for whom the payment is made, or deducted from the profits of the same persons. In so far as the digital advertisement service is provided to those who are not in Turkey, the service is not deemed to be used in Turkey).

- Scope of Application

Per the DST Law, digital service providers are obliged to pay the digital service tax. Whether these providers are full taxpayers as per the Income Tax Law No. 193 and the Corporate Tax Law No. 5520, or, in the case of limited taxpayers, whether the said services are carried out through workplaces or permanent representatives in Turkey, shall have no impact or effect on their digital service tax liability.

Taxpayers residing abroad also fall within the scope of the DST Law. According to the DST Law, if the taxpayers do not have any residence, workplace, legal or business address in Turkey, and if deemed necessary in other cases, the Ministry of Treasury and Finance may hold those who are party to the transactions subject to taxation under the DST law, and those who act as intermediary during the transaction and payment liable to pay tax in order to secure payment.

- Exemption

The DST Law provides an exemption from the digital service tax by taking into account global revenues and the revenues earned in Turkey by the relevant parties. In this regard, digital service providers with revenues below 20 million Turkish Liras earned in Turkey or revenues under EUR 750 million (or the Turkish Lira equivalent thereof) earned globally during the previous fiscal period will be exempt from digital service tax. In case the taxpayer is a member of a consolidated group of companies in terms of its financial accounting, the total revenue of the group for those services subject to tax shall be taken into account in the application of these terms.

If both of the exemption amounts mentioned above are subsequently exceeded, the tax exemption is terminated and the digital service tax liability starts from the fourth taxation period following the tax period in which the limit is exceeded. In determining whether the said amounts have been exceeded, the cumulative revenue obtained in the relevant accounting period as of the end of the quarterly periods of the respective accounting period shall be taken into consideration.

- Taxation Period and Tax Declaration

Taxation period for the digital service tax is monthly periods of a calendar year. However, the Ministry of Treasury and Finance is authorized to specify the taxation period as three months, instead of the monthly periods, according to the operation volume of taxpayers. Taxpayers and those responsible for withholding the tax are obliged to submit the digital service tax returns until the end of the month following the taxation period.

- Measures for Securing Payment ofDST and Access Ban Procedure

The DST Law also introduces a significant sanction for the digital service providers who fail to fulfill their taxpayer duties, which may result in the access ban of the digital services provided.

Accordingly, if digital service providers or their authorized representatives in Turkey who fall within the scope of the DST Law fail to submit tax declarations and fulfill their payment obligations with regard to taxes in the scope of Tax Procedural Law, the Tax Office that is authorized to levy the DST may send notices via official service, electronic mail or any other communication media, using the information obtained from communication tools on websites, field names, IP addresses and similar sources, to the digital service providers or their authorized representatives in Turkey, and such cases shall be announced through the website of the Revenue Administration.

In case the tax obligations are not fulfilled within thirty (30) days after the announcement, the Ministry of Treasury and Finance shall decide for implementation of an access ban on the services provided by these digital service providers until the tax obligations are satisfied, and the said decision will be sent to the Information Technologies and Communication Authority for notification to the access providers. The necessary actions shall be taken by the access providers within twenty-four (24) hours after the notification of the access ban decision.

It is important to note that the DST Law provides that the authority may send (i.e., an option rather than a requirement) a prior notice to the taxpayer, followed by an access ban in case of failure to comply with the related digital service tax requirements. Accordingly, it would be reasonable to expect that digital service providers would be warned for non- compliance with the digital service tax requirements before implementation of an access ban decision. Such notifications will be announced on the website of the Revenue Administration. In case of failure to comply with the requirements within thirty (30) days as of the date of the announcement, the services provided by the digital service providers could be access banned upon the request of the Ministry of Treasury and Finance.

In conclusion, digital service providers should evaluate whether they fall within the scope of the DST Law in light of the monetary thresholds and the scope of its application. Digital service providers that do not fall under the exemption should fulfil their tax obligations to prevent the access ban of their services, as of the effective date of the DST Law.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in March 2020. A link to the full Legal Insight Quarterly may be found here

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.