Turkey Comes up with 7.5% Digital Service Tax

With every country’s tax authorities trying to catch up with modern ways of doing business, the latest is Turkey government who is going to enact 7.5% service tax on digital transactions. According to the new law, the digital service tax will be applicable as of 1 April 2020, and the tax period of the digital service tax will be monthly.

Taxpayers and those responsible for withholding digital service tax will declare and remit such taxes to the Turkish tax authorities on the last day of the following month. As a side note, the Ministry of Treasury and Finance is authorized to determine a quarterly taxation period instead of a one-month taxation period.

Turkey’s digital service tax will be declared to the tax office of the taxpayer that registered for VAT purposes, or it will be declared to a tax office to be determined by the Ministry of Treasury and Finance if no VAT registration was made in Turkey by the taxpayer. Impact on large multinationals Large multinationals will likely comply with the law as the law authorizes the Turkish Ministry of Treasury and Finance to warn companies that if they do not register for the digital service tax, the Ministry can request the Turkish Information Technologies and Communication Authority to ban the companies’ electronic activities.

It is clear that the digital service tax will apply to companies like Google, Facebook, Twitter, and Netflix as we considered the law’s thresholds. Some of these companies use Turkish subsidiaries whereas some do not. If a service provider does not have a fixed place of business or permanent representative in Turkey, the digital service tax will be declared and paid by the parties who act as an intermediary for the service provider.

Accordingly, the law may force these companies to establish a Turkish entity and there could also be other tax issues (e.g., transfer pricing issues) that should be considered.

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