Even though Turkey has undertaken to implement the Mutual Agreement Procedure ("MAP") under more than 80 double tax treaties ("Double Tax Treaties") and the Turkish Revenue Administration had published a MAP guideline in October 2019, "Guideline on the Mutual Agreement Procedure for the Elimination of Double Taxation Agreements", there hadn't been any provision in the Tax Procedural Code that laid out the rules for implementing the Mutual Agreement Procedure, to this date.
Law on Amendments to the Tax Procedural Code and Other Codes No. 7338 ("Law No. 7338" or "Law") has been enacted and published in the Official Gazette today, on October 26, 2021. Among others, the Law introduces provisions regarding the implementation of the Mutual Agreement Procedure generally provided for in Article 25 of the Double Tax Treaties. Our explanations regarding these provisions are as follows.
1. Submitting a Request for the Commencement of the Mutual Agreement Procedure
Under the Law, taxpayers shall be able to submit Mutual Agreement Procedure requests to the Turkish Revenue Administration under the respective double tax treaty, in case they believe that the actions of the Turkish Revenue Administration have resulted in, or that there are strong indications that they will result in "taxation not in accordance with the provisions of the Double Tax Treaty".
In cases where the total tax amount can be bifurcated as Double Tax Treaty related and non-Double Tax Treaty related, the MAP request can only be submitted for the portion that falls within the scope of the relevant Double Tax Treaty.
For the request to be evaluated, the request must be submitted within the period provided in the relevant double tax treaty. If the Double Tax Treaty doesn't offer a specific time limit or it refers to the domestic law for the application period, then the request must be submitted within three years following the alleged violation of the Double Tax Treaty came to the taxpayer's knowledge.
The Law provides that the taxpayer's request for a Mutual Agreement Procedure halts the period for filing a lawsuit against the tax assessment or the tax declaration with reservation as of the date of request. However, the request does not suspend the collection of accrued taxes and penalties.
2. Finalization of the Mutual Agreement Procedure
If the Mutual Agreement Procedure is finalized with an agreement between the Turkish Revenue Administration and the other Contracting State, the taxpayer shall be notified with a letter.
The taxpayers should inform the Turkish Revenue Administration of their acceptance of the agreement within 30 days from the date of notification. In case the taxpayers have not responded to the notification letter within 30 days, they shall be deemed as not to have accepted the agreement. The term for filing a lawsuit resumes following the termination of the 30-day period. The term for litigation extends to 15 days in case the remaining term is less than 15 days.
If the taxpayer accepts the agreement between the Turkish Revenue Administration and the other Contracting State in due time, the mutual agreement occurs, and the tax amount and the related penalties shall be adjusted in accordance with the agreement. Upon the acceptance of the agreement, the taxpayer shall be barred from bringing a claim against the adjusted tax and penalties or filing a complaint with the other government authorities for the same.
In the event that the Turkish Revenue Administration declines the MAP request, or if the competent authorities of the Contracting States could not reach an agreement, the taxpayer shall be notified with a letter. The taxpayer can file a lawsuit before the tax court within the remaining term upon receipt of the letter. If the remaining term is less than 15 days, the term for filing a case shall extend to 15 days.
3. Litigation and Settlement Processes Initiated Before the Commencement of the Mutual Agreement Procedure
If the taxpayer had initiated a lawsuit prior to the Mutual Agreement Procedure, the court shall not examine the case. Even if the court decides on the matter for some reason, the outcome of the Mutual Agreement Procedure shall prevail. The result of the Mutual Agreement Procedure shall be notified to the court by the Turkish Revenue Administration. In case the competent authorities of the Contracting States could not come to an agreement, the suspended case before the tax court shall proceed.
If the taxpayer had made a request for settlement prior to the Mutual Agreement Procedure request, the settlement process shall be postponed until the Mutual Agreement Procedure is finalized. If the request for reconciliation was made after the Mutual Agreement Procedure has started and before it came to an end, the taxpayer shall be deemed to renounce their Mutual Agreement Procedure request. In case the settlement occurs, the taxpayers cannot apply for a Mutual Agreement Procedure except to request an adjustment from the other Contracting State. If the settlement does not occur, the taxpayer can submit a request for a Mutual Agreement Procedure again.
3. Other Issues
In case a tax adjustment is required in Turkey due to the finalization of the Mutual Agreement Procedure, the adjustment shall be applied regardless of the statute of limitation provisions.
If the taxpayer has not accepted the outcome of the Mutual Agreement Procedure, they can withdraw their Mutual Agreement Procedure request at any stage of the Mutual Agreement Procedure. In that case, the formerly suspended litigation period shall resume from the point it ceased, and the taxpayer shall retain their rights for litigation and settlement within the scope of the other provisions of the Tax Procedural Code.
The Ministry of Treasury and Finance is authorized to determine the procedures and principles regarding implementing the Mutual Agreement Procedure provisions.
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.