1. E&Y Tax Marathon 2016 Case Study
Tax advice on fiscal transactions of Istanbul Inc.

2. Plan
1. Tax liability of Istanbul Inc
2. Dividend yields
3. Share sales transaction
4. Capital increase
5. Provisions
6. Real estate transfer

3. 1. Tax Liability of Istanbul Inc
1.1 Law applicable: Articles 1 and 2 of the Corporate Tax Law
Conclusion: Istanbul Inc. is a full liability tax payer.
=> Taxation to be made for its world-wide income by Turkey
1.2 Law applicable: Article 172 and 177 of the Tax Procedure Law
Conclusion: Istanbul Inc. is subject to balance-sheet basis.

4. 2. Dividend yields
Dividend income from Amsterdam BV
Dividends from Rome Srl
Profit made by Mann Limited

5. Taxation of dividends from Amsterdam BV
Application of Dutch withholding dividends tax rate (15%) to the period dividend of EUR
Articles 10, 23 and the annexed protocols of the Double Taxation Treaty between Turkey and the Netherlands
Limits to the Dutch taxation: 15% or 5% ?
Exemption method preferred for the elimination of double taxation (Art. 23 of the DTT)
Articles 5-1-b; 7 and 33 of the Turkish Corporate Tax Law
“Can the exemption under Article 5-1-b apply?” and “Is Article 7 (CFC regime) applicable?”
Non-Application of Article 33

6. Taxation of dividends from Rome Srl.
Actual amount of the period dividend to be discovered after application of the Italian corporate tax rate (27,5%) to the whole profit of EUR
Italian withholding dividends tax rate applied (25% or less?)
Articles 10, 23, 28 and the additional protocols of the Double Taxation Treaty between Italy and Turkey
Limits to the Italian taxation: 15%
Right to claim credit from the Italian taxation authority if more than 15% applied
Credit method preferred for the elimination of double taxation
Reference to Article 33 of the Turkish Corporate Tax Law - impossibility for the deduction
Turkish Council of State rejects the deduction as per Article 33 for taxes paid in Italy if conditions not met => risk of unavoidable double taxation for Istanbul Inc.
Exemptions under Article 5-1-b and CFC regime can’t be applied either

7. Taxation of the profit earned through Mann Limited
Non-Applicability of the general provisions of the Turkish Corporate Tax Law
Application of the CFC regime by virtue of Article 7 of the Corporate Tax Law
50% of Mann Limited shares held by Istanbul Inc.
Is “passive income criterion” fulfilled?
Is “effective tax rate” on the Isle of Mann less than 10%?
Gross revenue exceeds TRY

8. 3. Share sales transaction
Article 13 of Italy-Turkey Double Taxation Treaty
Can exemption under Article 5-1-c of the CTC apply?
Yes if;
Istanbul Inc. is an international holding company
Istanbul Inc. holds at least 10% of the shares of the foreign companies (other than Rome Srl.) for 1 continuous year.
Other conditions are already met
Application of the exemption of 75% under Article 5-1-e of the CTC
Possible: All conditions are met
Istanbul Inc. can choose not to use it; given that it is in need of cash flow

9. A new legislation: Incentive for capital increases in cash
Possible for TRY of the capital increase
Slight chance of application of Article 12 for the remaining part (TRY )
Exemption under Article 5-1-ç may apply

10. 5. Provisions Receivable from Ankara Inc
“Postponement of bankruptcy is sufficient ground for the receivable to be spared provision”
Receivable from Izmir Inc
“A debt secured is not available for being made provision”
“Security may be partial; or its foreclosure by virtue of Execution and Insolvency Law may be unsuccessful.” => Provision possible

11. 6. Real estate transfer
Taxation of the income derived will be made under general provisions (%20 CTR applies)
Reference to ‘real estate transfer’ in the AoA of Istanbul Inc
Istanbul Inc in the business of real estate trade? Or a ‘safety valve’ from ‘ultra vires’ for the old Turkish Commercial Code?
Exemption under Article 5-1-e of the Corporate Tax Law is possible.
Taxation of the ‘transaction’ under VAT Law and exemption of Article 17-4-r apply
Exemption from taxation recognised within the Stamp Tax Law
A statutory fee applies for the transaction at the Land Registry by virtue of the Statutory Fees Law

12. Thank you
Burak Keskin